Out-of-the-Money (OTM)

Out-of-the-Money (OTM) means an option contract has no intrinsic value right now—it would be worthless if exercised today. You'll hear this term when trading options (contracts that give you the right to buy or sell a stock at a set price). It matters because OTM options are cheaper but riskier: they need the stock to move in your favor just to become profitable. For example, if you buy a call option (the right to buy) with a strike price of $50, but the stock trades at $45, that option is OTM. The stock would need to rise above $50 for your option to have real value.