An option that cannot be exercised at a profit. An out-of-the-money option is a call option whose strike price is higher than the current market level, or a put option whose strike price is below market. A call option on December bonds at 100 would be out of the money if December bonds are at 99 or less; a put option would be out of the money if they were at 101 or more.
An option that has no intrinsic value. For calls, an option priced above the market price and for puts, an option priced below the market price.
In options trading parlance, a contract that would be worthless if it expired at current market prices. If January natural gas futures are currently trading at $10, for example, an $11 January call option is "out of the money" because exercising the options would result in a $1 loss. The opposite of "out of the money" is "in the money."