10. What Does “In the Money (ITM)” Mean in Options Trading?
In the Money (ITM) refers to an options contract that currently has intrinsic value, meaning it would be profitable if exercised immediately.
It answers the question: "If I exercise this option right now, will I make money?" If the answer is yes — the option is in the money.
1. ITM Definition by Option Type
| Option Type | ITM Condition | Why It’s Profitable |
|---|---|---|
| Call | Spot Price > Strike | You can buy at a lower price than market |
| Put | Spot Price < Strike | You can sell at a higher price than market |
2. Real Examples
| Option Type | Strike Price | Spot Price | Intrinsic Value | ITM/OTM Status |
|---|---|---|---|---|
| Call | ₹1,000 | ₹1,080 | ₹80 | ITM |
| Call | ₹1,000 | ₹990 | ₹0 | OTM |
| Put | ₹1,000 | ₹940 | ₹60 | ITM |
| Put | ₹1,000 | ₹1,050 | ₹0 | OTM |
Intrinsic Value = Spot – Strike (Call) Intrinsic Value = Strike – Spot (Put) If that value is positive, the option is ITM.
3. What Makes ITM Important?
- ITM options have real value and are more likely to be exercised
- Traders often square off ITM options near expiry to lock in profits
- Only ITM options may be settled for gains in expiry settlement (especially in Indian markets)
4. Analogy: Discount Deal
You have a coupon that lets you buy a pizza for ₹200.
- If the actual price of pizza is ₹300 → You save ₹100 → Coupon = In the Money
- If the actual price is ₹150 → Coupon is useless → Out of the Money
That’s how ITM options work — they let you trade better than the market price.
5. Visual: Option Moneyness Zones
- ITM: You're in profit right now
- ATM (At the Money): No gain, no loss (Spot ≈ Strike)
- OTM (Out of the Money): Not worth exercising
6. ITM vs ATM vs OTM: Quick Comparison
| Status | Call Option Condition | Put Option Condition | Value | Exercise Worthy? |
|---|---|---|---|---|
| ITM | Spot > Strike | Spot < Strike | Has value | Yes |
| ATM | Spot ≈ Strike | Spot ≈ Strike | Break-even | No |
| OTM | Spot < Strike | Spot > Strike | No value | No |
7. ITM and Option Premium
Option Premium = Intrinsic Value + Time Value
An ITM option has intrinsic value, so its premium is higher than OTM or ATM options.
| Option Type | Premium (Example) | Intrinsic Value | Time Value |
|---|---|---|---|
| ITM Call | ₹80 | ₹60 | ₹20 |
| ATM Call | ₹40 | ₹0 | ₹40 |
| OTM Call | ₹15 | ₹0 | ₹15 |
8. Key Takeaways
- ITM options have real (intrinsic) value
- Call Option ITM: Spot > Strike
- Put Option ITM: Spot < Strike
- ITM options are profitable if exercised immediately
- ITM options retain value as expiry nears, unlike OTM options which may expire worthless
- ITM options are costlier but carry less risk than OTM