Out of the Money Options: a cheaper way to enter the world of stock option investing.Out of the money options (OTM) are a cheap, but risky way to enter the world of stock option investing. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed.
(November 2015) ( Learn how and when to remove this template message)In finance, a put or put option is a stock market device which gives the owner of a put the accountung, but not the obligation, to sell an asset (the underlying), at a specified price (the strike), by a predetermined date (the expiry or maturity) to a given party (the seller of the put). Conversely, a put option loses its value as the underlying stock increases and the time to expiration approaches.
If it still out of the money at expiry, the option will expire worthless. The Basics of OptionsFor a small premium, stock options give the purchaser the right, but accountjng the obligation, tDefinition:A put option is an option contract in which the holder (buyer) has the right (but not the obligation) to sell a specified quantity of a security at a specified price ( strikeprice) within a fixed period of time (until its expiration).For the writer (seller) of a put option, it represents an obligation to buy theunderlying security at the strike price if the option is exercised.
The put option writer is paid a premium for taking on the risk associated with the obligation.For stock options, each contract covers 100 shares. Note: This article is all about put options for traditional stock options. If you are looking for information pertaining to put options as used in binary option trading, please read our writeup on binary put options instead as there are significant difference between the two. Buying Put OptionsPut buying is the simplest way to trade put options.
The underlying is usually either an exchange traded stock or a commodity. Note that an option gives the buyer the right to buy or sell the underlying contract at a predetermined price. The specific price at which the underlying can be bought or sold is referred to as accountnig strike price or exercise price of the option.Options only have a limited life-span. In the above definition of an oltion the buyer of an option can exercise the right within buy out of the money put option accounting specified time period.
The exercise period of the option specifies when the option expires and can no longer be traded. The exact date in which the option expires is set by the exchanges and.