Out-of-the-Money Option

An out-of-the-money option is an option contract that has no intrinsic value because the current market price of the underlying asset is unfavorable relative to the strike price. For a call option, this means the current price is below the strike; for a put, it means the current price is above the strike.

These options consist entirely of extrinsic value, or time value, which reflects the possibility that the asset price might move into a profitable range before expiration. While they are cheaper to purchase than in-the-money options, they have a lower probability of expiring profitably.

They are frequently used by traders for high-leverage speculation or as low-cost tail risk hedges.