Listen to a Business English Dialogue About Out of the money
Taylor: Hi Jesse, do you know what “out of the money” means in finance?
Jesse: Hey Taylor! Yes, “out of the money” refers to an option contract that has no intrinsic value because the underlying asset’s price is not favorable for exercising the option.
Taylor: That’s correct, Jesse. For example, a call option is out of the money if the strike price is higher than the current market price of the underlying asset.
Jesse: Exactly, Taylor. And a put option is out of the money if the strike price is lower than the current market price of the underlying asset.
Taylor: Right, Jesse. Investors may still hold out-of-the-money options in the hope that market conditions will change, allowing the option to become profitable.
Jesse: Yes, Taylor. However, out-of-the-money options typically have a lower premium compared to options that are in the money or at the money.
Taylor: That’s true, Jesse. Investors need the price of the underlying asset to move significantly in the desired direction for out-of-the-money options to become profitable.
Jesse: Absolutely, Taylor. Out-of-the-money options are considered speculative because they rely heavily on market movement to generate profits.
Taylor: Yes, Jesse. They offer the potential for high returns but also involve higher risk due to the uncertainty of whether the underlying asset’s price will move favorably.
Jesse: That’s correct, Taylor. Investors should carefully consider their risk tolerance and market expectations before trading out-of-the-money options.
Taylor: Agreed, Jesse. Understanding the concept of “out of the money” is crucial for investors to make informed decisions and manage their options trading strategies effectively.
Jesse: Absolutely, Taylor. It’s essential to assess the potential rewards and risks associated with out-of-the-money options to achieve their investment objectives.