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In the Money (ITM)

Updated on September 22, 2023 , 1469 views

What is In the Money (ITM)?

‘In the Money’ is a term that refers to option possessing great or Intrinsic Value in the Market. This indicates that an option has value in a strike price that is favourable when compared to the existing market price of the Underlying asset.

In the Money (ITM)

ITM means to major things. They are mentioned below:

  • In-the-Money ‘Call’ option means that the option holder has the opportunity to buy security below the current price in the market.
  • In-the-Money ‘put’ option means the option holder can sell the security above the existing market price.

Note that ITM does not mean the trader is making a profit in the trade. There are fees associated with the buying option. ITM is in contrast to the out-of-the-money option (OTM).

Important Points about In-the-Money

There are two important points to consider. They are mentioned below:

1. ITM Call Options

Call options allow buying an Underlying Asset for a given price before the date that was stated. This option can be utilised when the stock’s current market price is higher than the option’s strike price. Note that the amount than an option can be volatile when it comes to significant market changes such as events like natural disasters, economic Inflation, etc.

The amount that an option is in-the-money is called the intrinsic value. For instance, a Call Option with a strike of Rs. 30 would be in the money if the underlying stock was in trader for Rs. 35 per share. The difference between the strike price and the current price is the premium amount option.

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2. ITM Put Options

A call option allows purchasing an asset and Put Option does the opposite. The put option refers to the situation when the strike price is above the existing market price. An investor having this option at expiry would mean that the stock price is below the strike price. In turn, this would mean the option is worth exercising. A buyer of this option will hope that the stock price falls below the strike price to cover the premium cost for buying the put.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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