When is a put option considered out-of-the-money (OTM)?

When is a put option considered out-of-the-money (OTM)?

• A. If the strike price is greater than the market price
• B. If the strike price is equal to the market price
• C. If the strike price is less than the market price
• D. If it is not exercised within the expiration period

Answer: (C)

A put option is considered out-of-the-money (OTM) when the strike price is less than the market price of the underlying asset. This means that the option does not have intrinsic value, as exercising it would not be advantageous for the holder. Specifically, if the current market price is higher than the strike price, the put holder could sell the asset at a higher price in the market rather than exercising the option to sell at the lower strike price. Therefore, the correct answer reflects the condition that clearly defines an OTM scenario for put options, reinforcing the understanding of how strike prices and market prices interact in options trading.

A put option is considered out-of-the-money (OTM) when the strike price is less than the market price of the underlying asset. This means that the option does not have intrinsic value, as exercising it would not be advantageous for the holder. Specifically, if the current market price is higher than the strike price, the put holder could sell the asset at a higher price in the market rather than exercising the option to sell at the lower strike price. Therefore, the correct answer reflects the condition that clearly defines an OTM scenario for put options, reinforcing the understanding of how strike prices and market prices interact in options trading.