What is In the Money (ITM)? A Simple Guide
An option is in the money (ITM) when it has intrinsic value. A call is ITM when the price is above the strike; a put is ITM when the price is below the strike. ITM options carry real, exercisable worth, not just time value, so they cost more.
Moneyness describes where an option's strike sits versus the current price. In the money is the most valuable state, because the option already has real worth.
ITM, ATM and OTM are terms you will see all the time in options. Below, we break it down with plain examples and a clear payoff where it helps. You can view them across strikes in the option chain on Stockk.
Key Takeaways
- An ITM option has intrinsic value.
- A call is ITM when price is above the strike.
- A put is ITM when price is below the strike.
- ITM options cost more but move closely with the price.
- Deep ITM options behave almost like the stock.
How do ITM options behave?
Say NIFTY trades at 22,600. A 22,400 call is ITM by 200 points, because the right to buy at 22,400 is valuable when the index is at 22,600. A 22,800 put is ITM by 200 points for the same reason on the downside.
ITM options have higher premiums because they include intrinsic value. They also move more closely with the underlying asset, with a delta closer to one, and suffer less from time decay.
When do traders prefer ITM options?
- Higher probability: ITM options have a better chance of finishing in the money
- Closer tracking: they move nearly rupee-for-rupee with the price
- Less decay: their value is anchored by intrinsic worth
The trade-off is the larger premium, which ties up more capital than cheaper out-of-money options.
ITM, ATM and OTM compared
| State | Call condition | Premium |
|---|---|---|
| ITM | Price above strike | Highest |
| ATM | Price near strike | Medium |
| OTM | Price below strike | Lowest |
Puts read the other way round, so the same three labels flip. Showing only the call side is what leads beginners to misread a put chain.
| State | Put condition | Premium |
|---|---|---|
| ITM | Price below strike | Highest |
| ATM | Price near strike | Medium |
| OTM | Price above strike | Lowest |
Why traders pick ITM over OTM
ITM options cost more, so why choose them over cheap OTM options? The answer is reliability. ITM options have a higher probability of finishing in the money and move more predictably with the underlying asset. Many experienced traders prefer them for directional bets, accepting the higher cost for the better odds and the smaller impact from time decay.
For hands-on futures and options, Stockk is built for Indian traders and backed by Indira Securities. A demat account is free, and there is plenty more in the Knowledge Center.
Futures and Options are leveraged products and carry a high risk of loss that can be more than the money you put in. This article is only for learning and is not a recommendation to trade in derivatives.
Frequently Asked Questions
What makes a call option ITM?
A call is ITM when the spot price is above its strike price. The gap between them is its intrinsic value, and the larger the gap, the deeper ITM it is.
Do ITM options decay less?
Yes. ITM options have proportionally less time value, so time decay affects them less than at-the-money options. Deep ITM options decay very little.
Are ITM options more expensive?
Yes, because they include intrinsic value on top of time value. The higher cost buys a higher probability of finishing in the money.
What is the delta of an ITM option?
ITM call options have deltas closer to one, meaning they move nearly in step with the underlying. Deep ITM options approach a delta of one.
Should beginners trade ITM options?
ITM options are less affected by decay and behave more predictably, which some find easier, but they cost more upfront.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
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