Definition
In, at and out of the money describe where an option's strike price sits relative to the current price of the underlying asset. Together these three states are called option moneyness.
An option is a contract that gives the right, but not the obligation, to buy (a call) or sell (a put) an asset at a fixed price, the strike, until or on its expiry date.
| State | Call option | Put option |
|---|---|---|
| In the money (ITM) | Market price above strike | Market price below strike |
| At the money (ATM) | Market price at or very near strike | Market price at or very near strike |
| Out of the money (OTM) | Market price below strike | Market price above strike |
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Worked example (hypothetical)
Suppose a share trades at price P. Its option chain lists a strike A below P and a strike B above P.
- Call at strike A is an in the money option. Exercising it means buying below the market. Its intrinsic value is the gap P minus A.
- Call at strike B is out of the money. Buying at B when the market offers P makes no sense, so it has no intrinsic value. Its whole price is time value.
- Put at strike B is in the money, because selling at B beats the market price P.
- Put at strike A is out of the money.
- A strike equal to P, or the listed strike closest to it, is the at the money option.
If P later rises above B, the call at B moves into the money and the put at B moves out of the money. Moneyness changes every time the price moves.
Formal definition and edge cases
With underlying price S and strike K:
- Intrinsic value of a call is S minus K when positive, otherwise nil. Intrinsic value of a put is K minus S when positive, otherwise nil.
- Option premium is intrinsic value plus time value. OTM and ATM options consist only of time value.
- At the money in practice. Prices rarely equal a strike exactly. "ATM" usually means the nearest listed strike.
- ATM spot vs ATM forward. Many models measure moneyness against the forward price rather than spot. The two differ by carry and interest rates. FX option desks often quote ATM forward, or "delta-neutral straddle" ATM. See forward contract.
- Delta-based moneyness. Professional markets often describe strikes by delta instead of ITM/OTM labels. Deep OTM options have delta near nil. Deep ITM options have delta near full exposure.
- Deep ITM / deep OTM. These are informal terms for strikes far from the price. Deep OTM options are cheap because they are unlikely to finish ITM.
- At expiry. An OTM option expires worthless. Whether an ITM option is exercised automatically depends on exchange or broker rules, and on cash or physical settlement.
Where you see the term
- Option chains. Platforms often shade ITM strikes in a different colour from OTM strikes.
- Statements and risk reports. Open options may be grouped or valued by moneyness.
- Market news. Headlines mention large option expiries "out of the money" or strikes near the current price drawing attention around expiry.
Option buyers can lose the whole premium. Option sellers, and anyone trading leveraged derivatives, can lose money fast, sometimes more than the initial margin. Read risk management before trading any leveraged product.
Related: call option, delta, expiry date, trading glossary, trading basics.
Frequent questions
What does out of the money mean?
The option has no intrinsic value at the current price. For a call, the price is below the strike. For a put, the price is above the strike.
Is an in the money option always profitable?
No. The trade is profitable only if intrinsic value exceeds the premium paid, plus costs.
Why buy an out of the money option?
It costs less than an ITM option. However, it is less likely to have value at expiry. This is a description, not a recommendation.
Can an option be in the money for the buyer and the seller at once?
No. Moneyness belongs to the contract. An ITM option has value for the holder and is a liability for the writer.