You’ll often come across the term In The Money (ITM) when trading options. This refers to options that have intrinsic value, meaning the option’s strike price is favorable compared to the current price of the underlying asset.
For a call option to be ITM, the stock price must be higher than the option’s strike price. In this case, the buyer has the right to purchase the stock at a lower price than what it's trading for on the market, which gives the option real value.
For a put option to be ITM, the stock price must be lower than the option’s strike price. This allows the buyer to sell the stock at a higher price than its current market value.
Let’s say you hold a call option with a strike price of $40 on a stock that is currently trading at $50. Since you could buy the stock at $40 when it’s trading for $50, your call option is “in the money” by $10 per share. This means the option has intrinsic value, and you could profit if you exercise it.
ITM options are more valuable because they have a built-in profit. However, they tend to be more expensive due to their potential profitability. Understanding whether an option is ITM can help traders make better decisions when buying or selling options.
Most option selling strategies, for instance my 0DTE Breakeven Iron Condor strategy, depend on selling Out of The Money calls or puts, as opposed to In the Money. But there are also option selling strategies, such as ITM Covered Call, where you sell In The Money options.
1
