(ITM), In the Money

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 Options workshop



When an option is "in the money" (ITM), it means the option has intrinsic value, because it would be profitable to exercise the option at its current price. The intrinsic value is the amount by which the option's strike price is favorable compared to the current market price of the underlying asset. Let's look at examples for both call and put options:


  • In the Money Call Option (ITM Call):

Suppose you have a call option to buy 100 shares of Company XYZ with a strike price of $50, and the current market price of Company XYZ stock is $60.

In this case, the call option is considered in the money, because if you exercise it right now, you could buy the shares for $50 each (the strike price) instead of the current market price of $60. This means you have an intrinsic value of $60 - $50 = $10 per share.

If you exercise this ITM call option, you would gain $10 per share compared to buying the shares directly in the market.

  • In the Money Put Option (ITM Put):

Let's say you have a put option to sell 100 shares of Company ABC with a strike price of $70, and the current market price of Company ABC stock is $60.

The put option is in the money, because if you exercise it at this moment, you could sell the shares for $70 each (the strike price) instead of the current market price of $60. This means you have an intrinsic value of $70 - $60 = $10 per share.

If you exercise this ITM put option, you would gain $10 per share compared to selling the shares directly in the market.

In both examples, the options are in the money, because they provide an immediate financial benefit if exercised. Traders and investors often seek in-the-money options because they have intrinsic value and can result in a profit without relying on further price movements in the underlying asset. The amount of intrinsic value for an ITM option is the difference between the strike price and the current market price of the underlying asset

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