In the Money vs Out of the Money vs At the Money: ITM, OTM, ATM Explained
Master the concept of moneyness—the relationship between strike price and stock price that determines an option's intrinsic value.
What is Moneyness?
Moneyness describes the relationship between an option's strike price and the current stock price. It tells you whether exercising would be profitable.
ITM options have intrinsic value. OTM options have only time value. ATM options are at the sweet spot for certain strategies.
TL;DR - Quick Answer
ITM = profitable to exercise now. ATM = strike equals stock price. OTM = not profitable to exercise. ITM has intrinsic value, OTM has only time value. ATM has highest time value.
The Three States of Moneyness
Every option is either ITM, ATM, or OTM. This matters because it determines how much the option is worth and how it behaves.
In the Money (ITM)
An option is ITM when exercising it would be profitable (ignoring premium paid).
Call ITM: Stock price > Strike price
Put ITM: Stock price < Strike price
Example: Stock at $105. The $100 call is ITM by $5. The $110 put is ITM by $5.
At the Money (ATM)
Strike price equals (or is very close to) the current stock price.
ATM options have the highest time value and are most sensitive to stock price changes (highest gamma).
Out of the Money (OTM)
An option is OTM when exercising would NOT be profitable.
Call OTM: Stock price < Strike price
Put OTM: Stock price > Strike price
OTM options are cheaper but need bigger moves to profit.
Quick Reference
| Stock = $100 | Call | Put |
|---|---|---|
| $95 Strike | ITM | OTM |
| $100 Strike | ATM | ATM |
| $105 Strike | OTM | ITM |
Key Takeaways
- ITM = has intrinsic value, more expensive, higher probability
- ATM = highest time value, most price sensitive
- OTM = cheaper, needs big move, lower probability
- Calls and puts have opposite moneyness at same strike
Related Options Strategies
Options Premium
How moneyness affects price.
Intrinsic vs Extrinsic
Breaking down option value.
Understanding related strategies helps you choose the best approach for your market outlook and risk tolerance. Each strategy has unique characteristics that make it suitable for different market conditions.
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