Why Are Out-of-the-Money Options Generally Cheaper than In-the-Money Options? ▴ Learn

Why Are Out-of-the-Money Options Generally Cheaper than In-the-Money Options?

OTM options are cheaper because they have no intrinsic value; their premium consists solely of extrinsic (time and volatility) value. ITM options, conversely, have intrinsic value, which is the immediate profit if exercised.

Since OTM options have a lower probability of expiring profitably, they are priced lower to reflect this higher risk and lack of current value. This makes them attractive for high-leverage speculation.

Why Is Early Exercise Generally Not Optimal for American Call Options?

Does a Change in Implied Volatility Affect At-the-Money and Out-of-the-Money Options Differently?

Why Is a Two-Step Approve and Transferfrom Process Often Cheaper in the Long Run for Frequent Interactions?

Does a Drop in Volatility Have the Same Impact on In-the-Money and Out-of-the-Money Options?