Out Of The Money, or OTM, options have a strike price<\/a> that is not yet useful to the buyer. A call is OTM when its strike is above the current price. A put is OTM when its strike is below the current price. OTM options are cheap but need a strong move to gain value.<\/p>\n This guide explains what OTM means and how Indian traders can use OTM options well.<\/p>\n An OTM option has no intrinsic value<\/a> yet. Its price is made up only of time value and implied volatility<\/a>.<\/p>\n The further OTM the option is, the lower the cost and the lower the chance of profit.<\/p>\n Suppose Nifty<\/a> trades at 22,000.<\/p>\n These calls gain value only if Nifty rises through the strike before expiry.<\/p>\n Suppose Nifty trades at 22,000.<\/p>\n These puts gain value only if Nifty falls through the strike before expiry.<\/p>\n OTM options have:<\/p>\n This means small price moves of the underlying may not move the option much.<\/p>\n OTM options work well when:<\/p>\n Traders often use OTM options around major news, earnings, or budgets.<\/p>\n OTM options can expire worthless. The risk is limited to the premium paid, but the chance of full loss is higher than with ATM or ITM options.<\/p>\n Always size positions to handle this risk.<\/p>\n OTM options are used in many strategies:<\/p>\n Each strategy has its own risk profile<\/a>.<\/p>\n You can use OTM options on:<\/p>\nWhat Is an OTM Option?<\/h2>\n
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OTM Call Example<\/h2>\n
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OTM Put Example<\/h2>\n
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How OTM Options Behave<\/h2>\n
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When to Use OTM Options<\/h2>\n
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OTM Options and Risk<\/h2>\n
OTM in Option Strategies<\/h2>\n
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OTM Options in Indian Markets<\/h2>\n