Out-of-the-Money (OTM) refers to an option contract where the strike price is not favorable to the holder of the option, as it is not currently profitable to exercise the option.
For a call option, if the current market price of the underlying asset is below the strike price, it is considered out of the money. For a put option, if the current market price of the underlying asset is above the strike price, it is considered out of the money.
For example, suppose a stock is currently trading at $50, and an investor holds a call option with a strike price of $60. The option is out of the money because it would not be profitable for the investor to exercise the option at the current market price of $50.
Out-of-the-money options generally have lower premiums than in-the-money or at-the-money options, as they are less likely to be exercised and therefore less valuable. However, they may still be useful for certain options trading strategies, such as speculative trading or hedging against potential losses.