In-the-Money (ITM)
An option is in the money when exercising it would have positive intrinsic value based on the underlying price and strike.
✦ Key Insight
It helps users understand intrinsic value and likely exercise or settlement behavior.
✕ Common Misconceptions
ITM does not automatically mean the trade is profitable because the buyer may have paid a large premium.
Detailed Explanation
In Practice
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Call Option
A call option gives its holder the right, but not the obligation, to buy an underlying asset at a specified strike price before or at expiration, depending on the contract style.
Put Option
A put option gives its holder the right, but not the obligation, to sell an underlying asset at a specified strike price before or at expiration, depending on contract style.
Strike Price
The strike price is the predetermined price at which an option can be exercised according to its contract terms.
Option Premium
Option premium is the price paid by an option buyer and received by an option seller for the contract.
Moneyness
Moneyness describes an option's strike price relative to the current underlying price.