OTM Calls, or Out-of-the-Money Call Options, are cryptocurrency call options where the current market price of the underlying asset is below the option’s strike price. These options inherently possess no intrinsic value and derive their entire valuation from extrinsic factors, primarily time decay and implied volatility.
Mechanism
An OTM call option grants the holder the right, but not the obligation, to purchase the underlying cryptocurrency at a predetermined strike price on or before its expiration date. Since the strike price exceeds the current market price, immediate exercise would result in a financial loss, meaning the option’s value is purely speculative, contingent upon the underlying asset’s price appreciating significantly.
Methodology
Strategically, investors typically acquire OTM call options to speculate on substantial upward price movements of the underlying cryptocurrency with limited capital risk, as the maximum loss is restricted to the premium paid. Alternatively, institutions may sell OTM calls to generate premium income, assuming the underlying asset’s price will remain below the strike price until expiration, often as part of covered call strategies or income generation within options trading frameworks.
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