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OTM Put


It stands for out-of-the-money put; a put option with a strike price being below the combined amount of its underlying’s market price and the premium, at a given point over/ within its time to maturity (for American options) or at expiration date (for European options).

For example, an American put option with a strike price of $15 and a premium of $3 will be out of the money if its underlying assets is currently trading at $13, since its strike price is lower than the summation of its underlying price and premium:

Strike price < underlying price + premium

15 < 13+ 3

15 < 16

From the perspective of the option’s holder (the long), exercising the out-of-the-money put will not be feasible as it leads to the sale of the underlying at the strike price which is lower than the option’s cost and the market price of its underlying. If such a sale takes place, it would result in one dollar loss for every unit of the underlying. And for an option contract involving 100 shares, for example, the loss would accumulate to $100.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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