Out-of-the-money

An option is out-of-the-money when the market price of an instrument on which you hold an option is not close to the strike price.

Call options - which you buy when you think the price is going up - are out-of-the-money when the market price is below the strike price.

Put options - which you buy when you think the price of the underlying instrument is going down - are out-of-the-money when the market price is higher than the strike price.

For example, a call option on a stock with a strike price of $50 would be out-of-the-money if the current market price of the stock were $40.

And a put option at $50 on the same stock would be out-of-the-money if its market price were $60. When an option expires out-of-the-money, it has no value.