Maximizing Your Profits with Out of Money Call Options
An out-of-the-money (OTM) call option has a strike price above the current stock price, so it has no intrinsic value; its whole price is time value. OTM calls are cheap relative to in-the-money calls and give large percentage gains if the stock rises well above the strike before expiration, but they are also the options most likely to expire worthless. The buyer's maximum loss is the premium paid, which makes OTM calls a high-risk, high-reward way to bet on a rise, not a low-risk investment.
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What is an out-of-the-money call option?
An OTM call is a call whose strike is higher than the underlying's market price. To profit at expiration, the stock must rise above the strike plus the premium paid (the breakeven). The further out of the money the strike, the cheaper the option and the lower its delta, meaning its price moves less for each $1 move in the stock.
How expiration affects OTM calls
An OTM call that is still out of the money at expiration expires worthless. Time decay (theta) erodes its value every day, and the decay speeds up in the final weeks. Choosing an expiration with enough time for your expected move matters as much as choosing the strike.
How volatility affects OTM calls
Higher implied volatility raises the price of OTM calls, because a large move is seen as more likely. A buyer benefits if volatility rises after entry and is hurt if it falls, for example after an earnings announcement, even if the stock price barely changes.
Exercising vs selling
OTM calls are not worth exercising: exercising would mean paying the strike, which is above the market price. Holders who want to take a profit sell the option before expiration instead; if it moves into the money, selling usually also captures remaining time value that exercise would give up.
Managing risk with OTM calls
- Size small. Treat the premium as money you can lose entirely.
- Set exit rules. Decide in advance at what gain you will take profits and at what loss you will sell.
- Consider spreads. A bull call spread (buy one call, sell a higher-strike call) lowers the cost and breakeven in exchange for capping the gain.
- Review the option chain. Compare premiums, deltas, open interest and bid-ask spreads across strikes before choosing one.
Summary
OTM calls offer leverage to a stock's rise for a small premium, but most carry a low probability of finishing in the money and lose value to time decay. Use them with defined position sizes and exit rules. MarketXLS returns option chains and Greeks in Excel, for example =QM_GetOptionChain("AAPL"), to compare strikes; options data is end-of-day on the Standard plan and real-time on Advanced and Business. This article is educational and not investment advice.
Here are some templates that you can use to create your own models
Risk Reversal Option Strategy
Iron Albatross Spread
Long Albatross Spread
Short Albatross Spread
Long Strangle Option Strategy
Strap Strangle
Strip Strangle
Short Butterfly Spread
Strike Arbitrage
Relevant blogs that you can read to learn more about the topic
Use of Options to Hedge Market Risk
Option Strategies For Professional Traders
Short Albatross & Long Albatross Options Strategy
Long Strangle Option Strategy (Using Excel Template)
Collar Option Strategy – A Synopsis
