OTM amount
Definition · Level 4 · Naked options
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How far a strike is from the stock price when the option is out of the money (OTM). The strategy-based formula subtracts it, so an option far from the money needs less.
Example
Stock 100, 105 call: the OTM amount is 5.
Where Tradecraft teaches it
Level 4 · Naked options, in the lesson “Naked margin: how brokers size it”: The typical formula brokers use to size a naked option, and why they can ask for more.
Related terms
- House requirementA broker’s own margin rule, stricter than the regulatory minimum.
- Margin floorThe lowest the formula allows for a naked option, even when it is far out of the money: premium + 10% of the underlying (calls) or of the strike…
- Strategy-based marginA rule-based requirement set by formula for each position type.
- Blow-upLosing all or most of an account in a single event, usually from oversized short-vol or leveraged positions.
- Borrow cost in option pricesIn a hard-to-borrow stock, short sellers pay the fee through the options: puts trade expensive and calls cheap compared with parity at normal…
- Calendar Spread – CreditBuy the near-term option and sell the longer-term one at the same strike.