The term “out of the money” (OTM) is used to denote an option contract with solely extrinsic value. The delta of these choices will be less than 50.0. The strike price of an OTM call option will be greater than the market price of the underlying asset. An OTM put option, on the other hand, has a strike price that is lower than the underlying asset’s market price. ITM and ATM alternatives are more costly than OTM options. This is due to the fact that ITM options have inherent value, whereas ATM options are near to having intrinsic value.
Out of money options or OTM options are the ones in which intrinsic value of the option is zero and there is only extrinsic value or time value.
As an example, if XYZ share is currently trading at $50, then a $51 strike CALL option and for all strike prices above that and a $49 strike PUT option and for all strike prices below that are OTM. The value of these two example options are based only upon the number of days remaining for expiration or in other words, time value.