Education Series on Derivative Contracts
Out of the Money:
An option contract is out of the money when the
contract is not in favour of the buyer, that is, a profit could not be
generated by exercising the right or by trading.
A call option is out of the money at times when the strike price is
higher than the spot value of the asset. In such circumstances, a profit
could not be made from the contract.
A put option is out of the money when the strike price is lower than
the spot value or settlement price of the asset.
When a contract is out of the money, the premium fetched by it may be
lower as compared to other times. A contract which may be out of the
money at a point of time may turn to be in the money at another time
and vice versa