OTM
Business & Finance abbreviation · Stock Market & Investing
| Stands for | Out of the money |
|---|---|
| Categories | Business & Finance |
OTM stands for Out of the money, a stock market & investing abbreviation.
Describes an option with no intrinsic value: a call whose strike is above the current price of the underlying, or a put whose strike is below it. OTM options are cheaper and more speculative, expiring worthless unless the price moves past the strike.
Example: He bought cheap OTM calls a week before earnings, betting on a big jump.
Usage notes
An OTM option's entire price is time value, which decays as expiration approaches. Far OTM puts on stock indices are commonly bought as crash insurance. Traders who sell OTM options collect premium in exchange for taking on tail risk.
Related abbreviations
More stock market & investing abbreviations
- NDX – Nasdaq-100 Index (ticker symbol)
- NSE – National Stock Exchange of India
- NYMEX – New York Mercantile Exchange
- NYSE – New York Stock Exchange
- OI – Open interest
- OTC – Over-the-counter
- P/B – Price-to-book ratio
- P/E – Price-to-earnings ratio
- P/S – Price-to-sales ratio
- PDT – Pattern day trader
- PEG – Price/earnings-to-growth ratio
- PFOF – Payment for order flow