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Finance GlossaryOut of the Money (OTM)
Out of the Money (OTM)
Definition of Out of the Money (OTM)
An option contract is said to be out of the money (OTM) if it would not be profitable to exercise the contract immediately. Options with no intrinsic value; call options with a strike price higher than the current market price, or put options with a strike price lower than the market price. OTM options are less expensive than ITM options. Indian F&O traders often purchase OTM options for leveraged bets, though they expire worthless if the market doesn't move favourably.
Related Terms
Listing Date
The listing date is the specific date on which a company's shares are available for trading & investing on a stock exchange, in the secondary market. You could say that the listing date marks the beginning of the company's journey as a publicly traded entity.
Triple Top
A triple top is a bearish chart pattern where a stock or index reaches the same resistance level three times but fails to break above it. This repeated failure signals weakening buying momentum and a potential trend reversal from uptrend to downtrend. For example, if a stock rises to ₹500 three times over several months and falls each time, it may form a triple top, indicating a possible decline ahead.
Yield
Yield is the income generated from an investment, expressed as a percentage of its price or value. For example, a bond paying ₹50 annually on a ₹1,000 investment offers a 5% yield, helping investors compare income potential across different assets like bonds, dividends, or fixed deposits.
Strike Price
The strike price refers to the fixed price at which a trader can buy (call) or sell (put) the underlying asset. The strike price is a key component in options trading. It helps traders determine whether or not the option would be profitable when it expires. The intrinsic value of an option is influenced by the difference between the market price and strike price.
Founders Stock
The term founders stock refers to shares issued to the founders of a company. This type of stock is issued at face value and carries a vesting period, which is a lock-in period during which the shares cannot be sold.
During this period, the founders stock may not earn any returns, unless there are dividends attached to it. Founders stock is not an accounting term - it is used colloquially to denote the shares issued to founders.
During this period, the founders stock may not earn any returns, unless there are dividends attached to it. Founders stock is not an accounting term - it is used colloquially to denote the shares issued to founders.
Beta Stocks
Beta of stocks measures the risk that the shares carry compared to the broader market. Theoretically, the market is said to have a default Beta of 1. As a result, Beta stocks can be of four types:
- High Beta Stocks : typically having a Beta value of more than 1, these stocks are known to be high-risk, high-reward investments
- Low Beta Stocks : typically having a Beta value of less than 1, these stocks are known to be low-risk, low-reward investments
- Negative Beta Stocks : typically having a Beta value of less than zero, these stocks are known to have an inverse correlation with the market
- Same as the market : typically having a Beta that’s equal to 1, these stocks are known to share characteristics with the market
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