OTM Full Form in Share Market

What Is the full form of OTM in the Share Market?

The OTM Full Form in Share Market is Out of the money. In the realm of options trading, where investors speculate on the future price movements of underlying assets (like stocks), understanding the concept of “out of the money” (OTM) is crucial. It defines the relationship between the current market price of the asset and the strike price of an option contract. This relationship significantly impacts the option’s value and potential profitability.

OTM Options

When the underlying asset’s market price is unfavorable for quick execution, the option is OTM Call options provide holders the right but not the obligation to buy an asset at a strike price by an expiry date. Call options are OTM if the stock price is below the strike price. Exercising the option wouldn’t make sense since you could buy the shares cheaper elsewhere.

Put Options

A put option gives the right but not the obligation to sell an asset at a strike price by an expiry date. Put options are OTM when the stock price exceeds the strike price. You could sell the shares for more, so exercising isn’t lucrative.

Key qualities

OTM options are cheaper than ITM when the strike price surpasses market pricing. Their disadvantaged starting position makes them more likely to expire worthless. More leverage is attainable with OTM options. If the asset price increases before expiry, the option holder may profit greatly. ITM options are more profitable than OTM options. To reach the strike price and profit, the asset price must move considerably within the period. Time value—the possibility the asset price will reach the strike price before expiration—values most OTM options. Volatility and expiry effect time value.