ITM

In the money (ITM) describes an option that has intrinsic value, it would generate value if exercised immediately at the current stock price.

For a call: ITM when the stock price is above the strike price. For a put: ITM when the stock price is below the strike price.

ITM options have two components of value: intrinsic value (the real, immediate value) and extrinsic value (time and volatility premium). The deeper ITM an option goes, the more its price is dominated by intrinsic value and the less by extrinsic value.

Key characteristics:

• Higher premium than ATM or OTM options
• High delta (0.65–0.99 for calls; -0.65 to -0.99 for puts)
• Lower theta sensitivity, less extrinsic value to decay
• Lower vega, less sensitive to IV changes
• More likely to result in assignment at expiration

Deep ITM as a stock replacement: Deep ITM calls (delta 0.80–0.90) behave almost like owning the stock but require significantly less capital. A deep ITM call on a $200 stock might cost $25 (controlling $20,000 of stock for $2,500), a popular strategy for traders wanting stock-like exposure with defined risk.

Example: NVDA is at $125. The $110 call is ITM with $15 of intrinsic value. If this call trades at $17, the $2 above intrinsic is the remaining extrinsic value that decays to zero by expiration.

Related terms: OTM, ATM, moneyness, intrinsic value, delta, assignment

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