ITM ATM OTM explained

Every options contract sits in one of three states relative to the current stock price: in the money, at the money, or out of the money. These three terms, collectively called "moneyness", describe whether an option has intrinsic value right now, and they drive almost every other aspect of how an option behaves: its price, its delta, its sensitivity to time decay, and its probability of expiring profitably.

In the money (ITM)

An option is in the money when exercising it right now would be profitable based on the current stock price.

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

ITM options have intrinsic value, a real, tangible component of their price that doesn't decay with time. The deeper ITM an option is, the more intrinsic value it carries and the higher its delta.

Example: AAPL is trading at $195. The $185 call is ITM, it has $10 of intrinsic value. The $205 put is also ITM, it has $10 of intrinsic value.

Characteristics of ITM options:

• Higher premium (contains intrinsic value)
• High delta (0.65–0.99 for calls, -0.65 to -0.99 for puts)
• Less sensitive to IV changes (lower vega relative to price)
• More likely to be exercised or assigned at expiration

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 zero (or near-zero) intrinsic value. Their entire premium is extrinsic value, the combination of time value and implied volatility premium.

Example: AAPL is at $195. The $195 call and $195 put are both ATM.

Characteristics of ATM options:

• Highest absolute extrinsic value of any strike
• Delta of approximately 0.50 for calls, -0.50 for puts
• Highest sensitivity to time decay (theta), most value to lose from time passing
• Highest absolute vega, most sensitive to IV changes
• Highest gamma, delta shifts fastest for ATM options

ATM options are the battleground strike. They carry the most time value, decay the fastest, and are most sensitive to all the Greeks. Premium sellers love them for maximum theta harvest; straddle buyers use them to capture movement in either direction.

Out of the money (OTM)

An option is out of the money when exercising it right now would not be profitable. It has no intrinsic value, its entire price is extrinsic value.

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

Example: AAPL is at $195. The $205 call is OTM, AAPL would need to rise above $205 before this call has intrinsic value. The $185 put is OTM, AAPL would need to fall below $185.

Characteristics of OTM options:

• Lower premium (pure extrinsic value)
• Lower delta (0–0.49 for calls, -0.49 to 0 for puts)
• Higher probability of expiring worthless
• More leverage per dollar spent (bigger percentage gain if the stock moves to your strike)
• Sensitive to IV changes, a spike in IV inflates even OTM options significantly

Why moneyness matters for strategy

The delta shortcut

Delta provides a continuous measure of moneyness:

• Deep ITM: delta near 1.0 (calls) or -1.0 (puts)
• ATM: delta near 0.50
• OTM: delta between 0 and 0.50
• Far OTM: delta near 0

A 0.30 delta option is moderately OTM with roughly a 30% probability of expiring ITM. A 0.70 delta option is moderately ITM with roughly a 70% probability of expiring ITM.

Related terms: Intrinsic value, extrinsic value, delta, moneyness, strike price, premium

Try it on Stryke: Filter options by delta to instantly identify ITM, ATM, and OTM strikes in the Options Screener.

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