In the Money & Out of the Money
In the money, at the money, and out of the money describe where an option's strike sits versus the stock price. Learn what each means for calls, puts, and your risk.
In the money, at the money, and out of the money describe where an option's strike price sits compared to the current stock price. These three phrases, ITM, ATM, and OTM, are the everyday shorthand traders use to say whether an option already has real value or is still just hope.
Get these three straight and half the jargon on an options screen suddenly makes sense. Let me walk through them.
The Finish Line
Picture the strike price as a finish line, and the stock as a runner trying to reach it.
In the money means the runner has already crossed the line in your favor. The option has real, intrinsic value right now.
At the money means the runner is standing right on the line. The stock price equals the strike, so there is no built-in value yet, just potential.
Out of the money means the runner has not reached the line. The option has no intrinsic value, only hope that the stock gets there before expiration.
Which side of the line counts as "your favor" depends on whether you hold a call or a put.
Calls vs Puts
A call and a put are mirror images, so "in the money" points in opposite directions for each.
A call is in the money when the stock is above the strike. Your right to buy at $100 is valuable when the stock trades at $115. So a $100 call is ITM at $115, ATM at $100, and OTM at $90.
A put is in the money when the stock is below the strike. Your right to sell at $100 is valuable when the stock trades at $85. So a $100 put is ITM at $85, ATM at $100, and OTM at $115.
The simple test: an option is in the money when exercising it would give you a better price than the open market. If it would, it has real value. If it would not, it is out of the money.
Why It Matters for Your Trade
The three states are really a map of risk and reward.
Out-of-the-money options are cheap but long shots. All their premium is hope, so they cost little, but the stock has to move to make them pay. Most expire worthless.
In-the-money options are expensive but reliable. They carry real value, cost more, and behave more like the stock itself, moving closely with it thanks to a high delta.
At-the-money options sit in between, with the most time value and the fastest reaction to a move. When you pick a strike, you are really choosing a spot on this spectrum: cheap-and-unlikely, or pricey-and-solid.
- In the money: the option already has real intrinsic value.
- At the money: the stock sits right at the strike.
- Out of the money: no intrinsic value, only hope.
- Calls are ITM above the strike; puts are ITM below it.
Pop Quiz
Three quick questions to see what stuck. Pick an answer and the explanation shows up right away.
A $100 call, stock trading at $115. What state is it in?
A call is in the money when the stock is above the strike. At $115 versus a $100 strike, it has $15 of real value.
When is a put in the money?
A put is the right to sell, so it has real value when the stock is below the strike. That is in the money for a put.
An out-of-the-money option's premium is made of what?
Out of the money means no intrinsic value, so the whole premium is extrinsic, pure hope that decays over time.
Bottom Line
In, at, and out of the money are just a map of where the stock stands relative to your strike. In the money has real value, out of the money is all hope, and at the money sits on the line between them. Remember that calls flip the other way from puts, and you can read any option's state at a glance, along with the cheap-versus-reliable trade-off baked into your strike choice.
Keep going: the real value inside an ITM option is its intrinsic value, and the hope inside an OTM option is its extrinsic value.