Out Of The Money - OTM

Out-of-the-money. No money. No wins for you. Bad. Sad. Frowny face. That's what happens when you're out-of-the-money and you own an option.

The basics:

A stock option carries a strike price. If you own a call option, then that call isn't worth anything intrinsically until the underlying security is worth more than the strike price of the option.

Example:

A call option has a strike price of $20 and the underlying stock is trading at $22.30...it's $2.30 in-the-money. If the stock was trading at $17.40, then that call option (the right to pay $20 to buy a share of that stock) is $2.60 out-of-the-money.

The curveball here is time, or Theta. Your option doesn't expire for 20 weeks. It would probably still carry a lot of value. That is, the holder might ask what the odds were that, in the next 50 or so trading days, the stock could spike and trade to, say, $21.30, and then carry intrinsic value of $1.30? If it's a volatile stock, odds are probably good, i.e. that call option with a strike price at $20, expiring in 4-5 months, is probably still worth a fair pot of money, even if the stock today is trading below the strike price, like at $18.32 or whatever.

See: VIX. See: Black-Scholes. See: Theta Decay.