In the Money, At the Money, Out of the Money

Three phrases you will encounter constantly in options trading are in the money, at the money, and out of the money. Collectively called moneyness, they describe the relationship between an option's strike price and the current stock price. This relationship determines intrinsic value, delta, premium cost, and the probability that an option will be worth something at expiration.

In the money (ITM)

An option is in the money when it has intrinsic value right now, meaning it would be worth something if exercised at this moment.

For a call option: in the money when the stock price is above the strike price. For a put option: in the money when the stock price is below the strike price.

Example: AAPL is trading at $195. The $180 call is in the money. AAPL is $15 above the strike. The call has $15 of intrinsic value. The $200 put is in the money. AAPL is $5 below the strike. The put has $5 of intrinsic value.

ITM options have both intrinsic value and extrinsic value in their premium. Deep ITM options have mostly intrinsic value and very little extrinsic value. Their delta is high (close to 1.0 for calls, close to -1.0 for puts), meaning they move almost dollar for dollar with the stock.

At the money (ATM)

An option is at the money when its strike price is equal to or very close to the current stock price.

ATM options have no intrinsic value. Their entire premium is extrinsic value, which is the maximum it can be for any strike. This is why ATM options have the highest theta (fastest time decay) and the highest vega (most sensitive to IV changes).

Delta of ATM options is approximately 0.50 for calls and negative 0.50 for puts.

ATM options are the most commonly referenced in volatility analysis. The ATM straddle price is used to estimate the implied move of the stock over the remaining expiration period.

Out of the money (OTM)

An option is out of the money when it has no intrinsic value. It would be worthless if exercised right now.

For a call option: out of the money when the stock price is below the strike price. For a put option: out of the money when the stock price is above the strike price.

Example: AAPL at $195. The $200 call is out of the money. AAPL needs to rise above $200 before this call has intrinsic value. The $190 put is out of the money. AAPL needs to fall below $190 before this put has intrinsic value.

OTM options are less expensive than ATM or ITM options because they are less likely to expire with value. Their delta is below 0.50, meaning they move less per $1 of stock movement. The further OTM, the lower the probability of expiring in the money.

Why moneyness matters for your trades

Moneyness shapes your options trade in four ways:

Cost: ITM options are more expensive (intrinsic value adds to price). ATM options are moderately priced with maximum extrinsic value. OTM options are cheaper with less probability of profiting.

Delta and leverage: ITM options move most like the stock (high delta, lower leverage). OTM options have less dollar movement per $1 of stock movement but offer higher percentage returns on the premium invested when the stock does move to the strike.

Probability: OTM options are less likely to expire in the money. Sellers of OTM options have higher probability of profit. Buyers of OTM options need a larger move to profit.

Theta sensitivity: ATM options lose time value fastest in absolute terms. This is where sellers harvest the most theta income.

How moneyness changes as the stock moves

Moneyness is dynamic. An OTM option becomes ATM if the stock moves to the strike, and then ITM if it continues past. As moneyness changes, so does delta, the premium level, and the behavior of the option.

This is why position monitoring matters. A short option that was safely OTM when you sold it can become ATM or ITM as the stock trends against your position, requiring management or closure.

Related terms: Strike price, intrinsic value, extrinsic value, delta, premium, moneyness

Try it on Stryke: Filter options by moneyness and delta in the Options Screener to find the right strike for your strategy.

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