Moneyness describes where an option’s strike sits compared to the current price — i.e. whether you’d actually want to use it right now.
Three labels: ITM, ATM, OTM.
In the money (ITM)
The option has real value if exercised today.
- A call is ITM when the stock price is above the strike (you can buy below market).
- A put is ITM when the stock price is below the strike (you can sell above market).
At the money (ATM)
The strike is roughly equal to the current price. The option has no built-in advantage yet, but it’s right on the edge.
Out of the money (OTM)
Exercising would make no sense today.
- A call is OTM when the price is below the strike.
- A put is OTM when the price is above the strike.
OTM options aren’t worthless — they still have a chance of moving into the money before expiry, and you pay for that chance.
Quick table
With a stock trading at $100:
| Option | Strike | Status |
|---|---|---|
| Call | $90 | ITM (buy at 90, worth 100) |
| Call | $100 | ATM |
| Call | $110 | OTM |
| Put | $110 | ITM (sell at 110, worth 100) |
| Put | $100 | ATM |
| Put | $90 | OTM |
Intrinsic vs extrinsic value
- Intrinsic value = how deep ITM it is (never below zero).
- Extrinsic value = the rest of the premium — time and volatility, the price of possibility.
An OTM option is all extrinsic value. As expiry nears, that extrinsic value melts away — something you’ll feel a lot once you start trading.