What is in the money and out of the money in options trading?

A call option is in the money (ITM) if the market price is above the strike price. A put option is in the money if the market price is below the strike price. An option can also be out of the money (OTM) or at the money (ATM). In-the-money options contracts have higher premiums than other options that are not ITM.

Should I buy options ITM or OTM?

However, an ITM call has a higher initial value, so it is actually less risky. OTM calls have the most risk, especially when they are near the expiration date. If OTM calls are held through the expiration date, they expire worthless.

What are ITM OTM and ATM options?

Any option that has an intrinsic value is classified as ‘In the Money’ (ITM) option. Any option that does not have an intrinsic value is classified as ‘Out of the Money’ (OTM) option. If the strike price is almost equal to spot price, then the option is considered as ‘At the money’ (ATM) option.

Should you buy in the money or out of the money calls?

Out-of-the-money options perform better with a substantial increase in the price of the underlying stock; however, if you expect a smaller increase, at-the-money or in-the-money options are your best choices. Bullish investors must have a good idea of when the stock will hit their target price—the time horizon.

What is ITM in banking?

What is an Interactive Teller Machine (ITM)? An ITM is an innovative new banking technology that allows you to conduct teller transactions via video conferencing at the drive-thru without entering a branch.

What happens when you buy a call in the money?

The call option is in the money because the call option buyer has the right to buy the stock below its current trading price. When an option gives the buyer the right to buy the underlying security below the current market price, then that right has intrinsic value. “In the money” describes the moneyness of an option.

What does in the money mean in options trading?

In the Money. An option contract is in the money if it has intrinsic value. For example, a Call option is in the money if the price of the underlying asset is higher than the option contract strike price. Conversely, a Put option is in the money if the price of the underlying security is lower than the option contract strike price.

What are out of the money (OTM) options?

Out of the money options are, as the name suggests, the opposite of in the money options. They are options whose intrinsic value is zero (it can’t be negative). OTM call options have a strike price higher than the current market price of the underlying. OTM put options have a strike price lower than the current market price of the underlying.

What is an out of the money put option?

An out of the money put option means the holder has an option to sell the underlying contract at a price below its current level. Please note that if you are buying calls or puts, you are expecting the market to move in the money. Selling options will always be betting on a market moving out of the money.

What is an in the money call option?

An in the money call option, therefore, is one that has a strike price lower than the current stock price. A call option with a strike price of $132.50, for example, would be considered ITM if the underlying stock is valued at $135 per share because the strike price has already been exceeded.