An out of the money (OTM) option is an option that has no intrinsic value. This means that the option is not currently in-the-money and, if exercised, would result in a net cash outflow to the option holder. OTM options are typically cheaper than their in-the-money or at-the-money counterparts because they have a lower probability of expiring in-the-money.
How do I find the best strike price for options?
There is no definitive answer to this question, as the best strike price for options will vary depending on a number of factors, including the underlying asset's price, the option's expiration date, and your own personal investment goals. However, there are a few general tips that can help you choose a strike price that is right for you:
- If you are bullish on the underlying asset, you may want to choose a strike price that is below the current market price, as this will give you the opportunity to buy the asset at a discount if it rises in value.
- If you are bearish on the underlying asset, you may want to choose a strike price that is above the current market price, as this will give you the opportunity to sell the asset at a premium if it falls in value.
- If you are neutral on the underlying asset, you may want to choose a strike price that is close to the current market price, as this will give you the opportunity to profit from either a rise or fall in the asset's price.
What happens if your option expires out of the money? If you are the holder of a call option and your option expires out of the money, you will lose the premium that you paid for the option. If you are the holder of a put option and your option expires out of the money, you will also lose the premium that you paid for the option.
What if there is no buyer for option?
If there is no buyer for an option, the option will simply not be traded. The option will still exist, and the seller will still own it, but it will not have any market value because there will be no buyers willing to pay anything for it. The option will only have value if there is at least one buyer willing to pay something for it.
Can you sell out of the money options?
Yes, you can sell out-of-the-money options, but there are a few things to consider before doing so. First, you need to have a firm understanding of what "out-of-the-money" means in relation to options trading. Out-of-the-money options are those that have strike prices that are higher than the current price of the underlying asset. For example, if you were selling a put option on a stock with a current price of $100, and the option had a strike price of $105, it would be considered out-of-the-money.
When selling out-of-the-money options, it's important to keep in mind that these options will have less intrinsic value than in-the-money options. This means that they will be less expensive to buy, but will also have a lower probability of expiring in-the-money. As a result, you will need to carefully consider the risks and rewards of selling out-of-the-money options before making any trades.
Is OTM better than ITM? Assuming you are referring to options trading, in general OTM options are less expensive than ITM options because they have a lower probability of expiring in-the-money. All else being equal, a higher probability of expiring in-the-money results in a higher price for the option.
However, there is no definitive answer as to whether OTM or ITM options are better to trade, as it depends on the specific circumstances. Some factors to consider include the underlying security's price movement, implied volatility, and time to expiration.