If an option is ‘out of the money’ it is usually not worth exercising given the current market price of the underlying asset. That also makes it cheap to buy.
For example, a three-month call option on a share might have a strike price of £2.50. If the actual share trades on the London Stock Exchange at £2.00, the call option is out of the money.Were the holder to exercise it they would lose 50p (buying the share from the option writer for £2.50 and selling it on in the open market for £2), plus any premium they have paid on top.
However, that does not mean the option is worthless.There is always a chance that the underlying share will rise above £2.50 before the option expires, which would put it ‘in the money’.