Underwater

Filed Under »
Dictionary Says

Definition of 'Underwater'

An option that would be worthless if it expired today. An underwater option may be either a call or put option. A call option is underwater when its strike price is higher than the market price of the underlying asset. A put option is underwater when its strike price is lower than the market price of the underlying asset. An option's value is determined by its intrinsic value, time to expiration, volatility and the underlying asset's current value.
Investopedia Says

Investopedia explains 'Underwater'

An underwater option is also known as an "out of the money option." These options are less expensive to purchase but are considered riskier because they are more likely than in-the-money options to expire worthless. A trader might choose to buy underwater options if he had little capital to invest or if he expected a significant move in the underlying asset's price.

Related Video for 'Underwater'

Articles Of Interest

  1.

    Reinvesting Capital Gains In Leveraged Portfolios

    Don't get forced into action. Learn how to plan properly to avoid making rash decisions.

  2. Explaining Underwater Loans

    Feel like you're drowning in debt? It may be because your loans have gone underwater.

  3. Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.

  4. Mortgage Options For Underwater Homeowners

    Find out what options are available when your mortgage is greater than the value of your home.

  5. The Benefits And Value Of Stock Options

    The pros and cons of corporate stock options have been debated since the incentive was created. Learn more about stock option basics and the cost of stock options.

  6. Traders: Profit From Other Investors' Fear

    Learn to pounce on the opportunity that arises when other traders run and hide.

  7. 6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.

  8. American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.

  9. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  10. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center