Far Out-Of-The-Money (OTM) options

Far Out-of-the-Money (OTM) options are options contracts where the strike price is significantly distant from the current market price of the underlying asset — meaning an extremely large favourable price move in the underlying is required before the option has any intrinsic value at expiry. For a far OTM call option, the strike price is substantially above the current underlying price; for a far OTM put, the strike is substantially below. Far OTM options carry very low premiums (since the probability of them expiring in the money is very small) but offer extremely high percentage returns if the underlying makes a large unexpected move — creating a lottery-ticket payoff profile. In Indian F&O markets — particularly Nifty 50 and Bank Nifty weekly options — far OTM options on expiry day (0DTE) are among the most heavily traded instruments by retail participants seeking low-cost, high-leverage directional bets. The low premium (sometimes ₹1 to ₹5 per lot) makes them appear inexpensive but the probability of profit is very low — SEBI's 2023-24 study found that retail individual traders in far OTM options were among the most consistent loss-makers. Institutional sellers of far OTM options (through strategies like iron condors and short strangles) systematically collect premium from retail buyers, profiting from the high probability that these options expire worthless — a structural information and pricing efficiency advantage that consistently favours sophisticated sellers over retail far OTM option buyers in Indian derivatives markets.