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Out of the money (OTM)

An option with no intrinsic value: a call with the stock below its strike, or a put with the stock above it.

How a call option's delta changes with the underlying priceAn S-shaped curve rising from zero, passing through about a half at the strike, and flattening near one.Delta of a call option1.000.5008090110120Out of the moneyAt the moneyIn the money1.00 means it moves one-for-one with the stockdelta ≈ 0.50 at the strikeStrike 100Underlying price
Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.

OTM options are all extrinsic-value. They are cheap in dollars and expensive in probability: most expire worthless. That is why they attract buyers hoping for a big move and sellers collecting premium.

The further out of the money, the lower the delta and the faster the option loses value as expiration approaches without a move.

Example: stock at $40. A $45 call priced at $0.30 needs the stock to rise more than 12% to $45.30 by expiration just to break even.

Related: in-the-money, at-the-money, extrinsic-value, credit-spread

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