This page explains the term in the money (ITM) and how to decide if an option is in the money. It also explains common characteristics of in the money options.

## Option Moneyness

“In the money”, often referred to as “ITM”, is one of three cases of option “moneyness”. The other two are at the money (ATM) and out of the money (OTM). Every option is either ITM, ATM, or OTM.

## Which Options Are In the Money?

An option is in the money when it has positive intrinsic value.

In other words, if you immediately exercised the option (if it’s American), or if underlying price stayed the same until expiration and you exercised it then, exercising the option would have a positive effect (by exercising a call option you could buy the underlying below its market price, or with a put you could sell it above its market price).

An option’s moneyness depends on the relationship between its strike price and underlying price. It is different for calls and puts.

## In the Money Call Options

A call option is in the money if its strike price is smaller than the current market price of the underlying stock.

In other words, by exercising the call option you could buy the underlying stock for a price below its current market price (the difference is the option’s intrinsic value).

For instance, when a stock is trading at $65 per share, all call options on this stock with strike prices below $65 (for example, the $60 strike call, the $55 strike call, and the $50 strike call) are in the money. For example, if you immediately exercise the $60 strike call, you buy the stock for $60 and save $5 per share compared to buying the stock in the stock market for $65.

Conversely, all call options with strike prices above $65 are out of the money. Exercising these would not make economic sense at current underlying price, because you can buy the stock cheaper in the stock market.

## In the Money Put Options

With put options it is exactly the opposite. A put option is in the money if its strike price is greater than underlying price.

For example, with underlying stock trading at $38.60, put options with $40, $45, and $50 strikes are in the money. Exercising these would allow you to sell the underlying stock for more than it is currently worth in the stock market.

## Deep In the Money Options

An option is said to be deep in the money when it is in the money by a huge amount – in other words, when the difference between strike price and underlying price is very big.

For instance, when the underlying stock is trading at $65, a $30 strike call option or a $90 strike put option would be considered “deep in the money”.

## Characteristics of ITM Options

In the money options are generally more expensive than out of the money options with the same expiration date. The more an option is in the money, the higher its price (option premium).

In the money options are more sensitive to changes in underlying price than out of the money options. The more an option is in the money, the faster its option premium changes when the underlying stock moves. This sensitivity is measured by the Greek letter delta.

In the money call options have delta approaching +1, which means that for a $1 increase in the underlying stock’s price, the call option premium also increases by almost $1.

In the money put options have delta approaching -1, which means option premium declines as underlying stock price rises. Out of the money options have delta approaching zero, which means changes in underlying price hardly move the option premium.

In the money options are typically less liquid (have smaller trading volume and wider bid-ask spreads) than at the money options, other things being equal.