Options foundations

Moneyness: ITM, ATM, OTM

3 min

Moneyness describes the strike's relationship to the current price. It tells you at a glance how much intrinsic value an option has and how it behaves.

The three states

For a call (right to buy at the strike):

  • In the money (ITM) — spot is above the strike. Has intrinsic value.
  • At the money (ATM) — spot is roughly equal to the strike.
  • Out of the money (OTM) — spot is below the strike. Pure extrinsic value, zero intrinsic.

For a put it is mirrored — a put is ITM when spot is below the strike.

Stock = 100
  Call strike 90  -> ITM (10 intrinsic)
  Call strike 100 -> ATM
  Call strike 110 -> OTM (0 intrinsic)
  Put  strike 110 -> ITM (10 intrinsic)

Why moneyness shapes your choice

  • OTM options are cheap, mostly time value, and can expire worthless — high risk, high leverage. Most OTM options bought for speculation lose everything.
  • ATM options carry the most extrinsic value and the fastest time decay.
  • ITM options cost more (you are paying for intrinsic value) but behave more like the underlying and are less likely to expire worthless.

Cheap OTM options feel attractive because of the leverage, but the probability of profit is low. Moneyness is the dial that trades cost against probability — there is no free lunch on it.

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Risk disclaimer

This content is for educational and informational purposes only and is not investment, financial, tax or legal advice. Trading and investing carry risk, including the possible loss of capital. Any performance shown by third-party tools is hypothetical and not a promise of future results. Do your own research and consider professional advice before making any decision.