out-of-the-money

An option with no value. A call option is out of the money when the strike or exercise price is above the price of the underlying security. Similarly a put option is out of the money when the exercise price is below the price of the underlying security.

Related links

call option

put option

+ out of the money

USA

Reflecting a balance owed (though not necessarily due) from one party to another. Commonly used in a variety of contexts. In swaps and derivatives, a trade is, or a group of trades are, described as being out of the money to the party that has accrued a negative net balance.

For example, parties to an ISDA agreement do not typically settle their trades on a daily or even weekly or monthly basis. Rather, the parties run debit and credit balances with one another (usually backed by the daily or weekly exchange of collateral). When the aggregate value of all trade positions under a particular trade or group of trades is negative for a party, that party is said to be out of the money on that trade or group of trades.

This term is also commonly used in the context of options. In a situation where the exercise or strike price for an option is:

• In the case of a call option, above the market price of the asset or commodity underlying the option, which would not permit the party exercising the call option to buy the underlying asset or commodity at a lower price and sell it at the (higher) market price for a profit, such option is out of the money to that party.

• In the case of a put option, below the market price of the asset or commodity underlying the option, which would not permit the party exercising the put option to sell the underlying asset or commodity at a higher price and buy it at the (lower) market price for a profit, such option is out of the money to that party.

Related terms

exposure

ISDA Credit Support Annex

in the money