OTM- / ITM-options

OTM is an abbreviation for "out of the money" and refers to options where the exercise price is above the current market price of the underlying asset (e.g. a stock). In the case of call options, this means that the exercise price is higher than the current market price of the underlying asset. In the case of put options, this means that the exercise price is lower than the current market price of the underlying asset.

OTM options are riskier compared to "in the money" (ITM) options and "at the money" (ATM) options, as the buyer of the option has no intrinsic value. Therefore, the option holder has no right to buy or sell the underlying asset at the exercise price, as this would be more expensive than the current market price. Instead, the value of the option depends entirely on the expected future price of the underlying asset. OTM options are typically cheaper than ITM options because they represent a higher risk for the buyer. However, they can also offer higher potential for gains if the price of the underlying asset moves significantly in the desired direction. OTM options are often used by speculators and experienced investors who are willing to take higher risks to achieve higher returns.