These are my notes on a trading term, In-the-money ( ITM ).
In options trading, ITM means your contract has built-in (intrinsic) value. That means it’s worth something right now, even without future movement — whether you choose to exercise or sell the contract.
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Options Trading
An option is said to be “in the money” (ITM) when it has intrinsic value, meaning it would lead to a profit if exercised immediately.
- Call Option (right to buy) is in the money if:
- Stock price > Strike price
- Example: You have a call option to buy a stock at $50, and the stock is currently trading at $60. The option is $10 in the money.
- Put Option (right to sell) is in the money if:
- Stock price < Strike price
- Example: You have a put option to sell at $40, and the stock is trading at $30. The option is $10 in the money.
| Option Status | Stock vs Strike | Intrinsic Value (Built-In) | Extrinsic Value (Add-On) | What It Means |
|---|---|---|---|---|
| In the Money (ITM) | Favorable (e.g., stock above strike for calls, below strike for puts) | Yes → contract has built-in worth now | Still may have add-on value (time, volatility) | You could exercise or sell today and walk away with value |
| At the Money (ATM) | Stock price ≈ strike price | 0 (no built-in value) | 100% add-on value | All value is from time/volatility; needs movement to be profitable |
| Out of the Money (OTM) | Unfavorable (e.g., stock below strike for calls, above strike for puts) | 0 (no built-in value) | Only add-on value (time, volatility) | Worthless at expiration unless price moves into ITM |
Here’s a visual chart that breaks down option value into intrinsic (built-in, green) and extrinsic (add-on, orange):
- ITM: Has both intrinsic and extrinsic value.
- ATM: Only extrinsic value (no built-in).
- OTM: Only extrinsic value (no built-in).
Do you want me to also make a side-by-side diagram with a short caption under each (ITM, ATM, OTM) so you can use it as a quick teaching aid?