Out of money

‘Out of money’ is a term applied in options trading to denote an options contract is unprofitable or has a negative profitability.

In options trading, if a trader buys a call option at a strike price and during the contract’s validity, the underlying asset’s price falls below the strike price, the call option is said to be out of money. For a put option, the opposite is true — if the asset’s price exceeds the strike price, the option is out of money.

Example

Say, we purchased a call option on an equity share at a strike price of Rs 500 with a three-month tenure. If the spot price of the stock is below Rs 500, our option would be said to be out of money.

In options trading, profitability of an option is called moneyness. When the profitability of an option (or moneyness) has a positive value (is profitable) then it is called in the money, if zero at the money, if a negative value then out of money.