Why Sell Out Of The Money Options
Introduction to Out Of The Money Options
You may have heard about how profitable it is to sell out of the money options? But what exactly does Out of The Money Options mean? Selling Out Of The Money Options has a high probability of profit.
A call option is Out of The Money when the strike price is above the stock price. A put option is Out of The Money when the strike price is below the stock price.
When Is A Put Option OTM?
A put option is considered Out Of The Money when the put option’s strike price is lower than the stock price of the underlying stock. This allows you to sell the underlying stock for lower than the prevailing market price which will not make any sense and therefore contains no intrinsic value.
Example : If GOOG is trading at $300, it’s $200 strike put options are Out Of The Money ( OTM ) as it allows one to sell GOOG at $200 when it is trading at $300 now.
Here is a table explaining the status of a put option against its underlying stock :
|Assume GOOG trading at $300 now.|
|Put Option Status||Strike Price|
If you want to trade high expensive stocks you rather sell spreads instead of naked options. With spreads you have defined you risk and reward. And you also have to put up less capital to make the trade.