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Derivatives




Out of The Money


For a derivative, it refers to a situation where it does not make a payoff to the holder.

A call option would be out of the money (out-of-the-money call) when the strike price of the call is higher than the market price of the underlying security/ asset. For a put option, this situation (out-of-the-money put) arises when the strike price of the put is lower than the market price of the underlying security/ asset. An out-of-the-money option is often known as underwater option.

In a similar manner, a swap is said to be out of the money (i.e., out-of-the-money swap), the present value of the net fixed-rate payments exceeds the net present value of the net floating-rate receipts from the perspective of a fixed-rate payer.



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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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