In the Money (ITM), At the Money (ATM), and Out of the Money (OTM)
In options trading, “in the money,” “at the money,” and “out of the money” describe the relationship between an option’s strike price and the underlying asset’s current market price.
In the Money (ITM)
Profitable if exercised immediately.
At the Money (ATM) Strike price is equal to market price (neutral position).
Out of the Money (OTM)
Not profitable if exercised immediately.
In the Money (ITM)
Definition: An option that has intrinsic value, meaning it is profitable if exercised right away.
Call Options: Market price > Strike price
Put Options: Market price < Strike price
At the Money (ATM)
Definition: The strike price is the same as, or very close to, the underlying asset’s current market price.
Call Options: Market price = Strike price
Put Options: Market price = Strike price
Out of the Money (OTM)
Definition: An option with no intrinsic value that would result in a loss if exercised immediately.
Call Options: Market price < Strike price
Put Options: Market price > Strike price
Comparison Table
| Option Type | In the Money (ITM) | At the Money (ATM) | Out of the Money (OTM) |
|---|---|---|---|
| Call Option | Market price > Strike price | Market price = Strike price | Market price < Strike price |
| Put Option | Market price < Strike price | Market price = Strike price | Market price > Strike price |
Key Considerations
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Intrinsic Value: ITM options have intrinsic value; OTM options do not. ATM options are neutral.
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Cost & Risk: ITM options cost more but have higher probability of profit. OTM options are cheaper but riskier.
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Time Value: All options have time value, but only ITM options also have intrinsic value.
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Profit Potential: ITM offers immediate profit potential; OTM offers low-cost high reward if the market moves favorably.
Note: Understanding ITM, ATM, and OTM options is critical for choosing the right strategy in options trading.
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