In The Money
An option that currently has intrinsic value.
Also called: itm
In plain language
A call is in the money when the underlying trades above the strike. A put is in the money when it trades below.
In-the-money options cost more but behave more like the underlying, with a higher delta and a lower proportion of decaying extrinsic value.
They also carry a higher probability of finishing profitable, which is exactly what the extra premium is paying for.
Why it matters
In-the-money options trade convexity for reliability. Less leverage, less decay, and outcomes far less dependent on precise timing.
Common mistakes
- Dismissing in-the-money options as expensive without comparing probability of profit.
- Forgetting that automatic exercise at expiration creates a stock position needing capital.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
An option with no intrinsic value, whose entire premium is time and volatility.
The portion of an option’s premium that would be realized if exercised right now.
How much an option’s price moves for a $1 move in the underlying.
The price at which an option contract can be exercised.
When an option seller is required to fulfill the contract’s obligation.