In-the-Money / Out-of-the-Money

What Is In-the-Money / Out-of-the-Money?

In-the-money (ITM) and out-of-the money (OTM) are terms used to describe the relationship between an option’s strike price and its underlying asset. An ITM option is one whose strike price is lower than the current market value of the underlying asset, while an OTM option has a strike price that is higher than the current market value of the underlying asset.

The difference between these two types of options can have a significant impact on their profitability. For example, if you buy an ITM call option with a strike price below the current stock price, your potential profit will be greater because there’s already some intrinsic value in it due to being “in-the-money”. On the other hand, buying an OTM call option means that you must wait for either time decay or movement in favor of your position before making any profits from it since it does not currently possess any intrinsic value.

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