In the money, which is also known as ITM, refers to an option that possesses intrinsic value.
We have two types of ITMs;
- in-the-money call option
- in-the-money put option
A call option will be in-the-money if the market price of the underlying security is above the strike price.
For example, a call option with a strike price of Rs 300 will be considered as in the money if the underlying security were trading at Rs. 350 or any value higher than Rs. 300.
The ITM call option for a stock means the option holder can buy the underlying stock below its current market price.
A put option will be in-the-money if the market price is below the strike price. The ITM put option for a stock means the option holder can sell the stock above its current market price.
A put option with a strike price of Rs 200 will be considered as in the money if the underlying security were trading at Rs. 150 or any value lower than Rs. 200.
Due to the relationship between the strike price and the prevailing market price of the underlying asset, in the money options presents profit opportunities for traders and investors. As a result, In-the-money options contracts are always traded at a higher premium than other options that are not ITM.
An option can also be out of the money (OTM) or at the money (ATM).
