In the Money (ITM)

Definition

An option is “in the money” (ITM) when it has intrinsic value — meaning the option holder could exercise it immediately for a favorable price (before trading costs and commissions).
– Call option ITM: market price of the underlying is above the strike price (holder could buy below market).
– Put option ITM: market price is below the strike price (holder could sell above market).

Key takeaways

• A call is ITM if market price > strike price.
• A put is ITM if market price < strike price.
• ITM options have intrinsic value and typically higher premiums than at-the-money (ATM) or out-of-the-money (OTM) options.
• Profitability depends on intrinsic value minus the premium paid (and any trading costs).
• Extrinsic factors (time to expiration, implied volatility) still affect price and time decay is generally lower for ITM options than for OTM/ATM options.

Moneyness: the three categories

Moneyness compares the underlying asset’s current price to the option’s strike price:
* In the Money (ITM) — exercising now would be immediately profitable (ignoring costs).
At the Money (ATM) — strike is equal or very close to the market price; immediate exercise yields little or no profit.
Out of the Money (OTM) — exercising now would lose money.

Moneyness determines intrinsic value (the immediate exercise gain) and helps set an option’s premium along with extrinsic value (time value and implied volatility).

Intrinsic vs. extrinsic value

• Intrinsic value = the positive difference between the market price and strike price (for calls: market − strike; for puts: strike − market). If negative or zero, intrinsic value is zero.
• Extrinsic value = premium portion attributed to time remaining and expected volatility. Longer time to expiration and higher implied volatility increase extrinsic value.

In-the-Money Call Options

A call gives the right to buy the underlying at the strike price. A call is ITM when the stock price exceeds the strike price. The option’s intrinsic value equals (stock price − strike price). Exercising an ITM call yields that intrinsic amount per share, but the buyer’s net profit equals intrinsic value minus the premium paid and transaction costs.

Example: strike $25, stock $30 → intrinsic value $5 per share.

In-the-Money Put Options

A put gives the right to sell the underlying at the strike price. A put is ITM when the stock price is below the strike price. Intrinsic value equals (strike price − stock price). As with calls, the buyer’s net profit is intrinsic value minus the premium and costs.

Example: strike $249, stock $247 → intrinsic value $2 per share.

Worked examples

Call example
You hold a call on BAC with strike $30; BAC trades at $33. Intrinsic value = $3 per share. One contract = 100 shares → intrinsic = $300. If you paid a premium of $3.50 ($350), exercising would leave you with a $50 loss after accounting for the premium (ignoring commissions).

Put example
You hold a put on TSLA with strike $249; TSLA trades at $247. Intrinsic value = $2 per share → $200 for the contract. If you paid $2.80 ($280), exercising now would not cover the premium; TSLA must fall further for a net profit.

These examples show that ITM status does not guarantee a profitable trade — the premium and fees matter.

Practical considerations

• ITM options cost more upfront because they already contain intrinsic value.
• They generally experience less time decay than ATM or OTM options but still lose extrinsic value as expiration approaches.
• Traders should consider total cost (premium + commissions) and alternative strategies (e.g., selling, closing, or exercising) when managing ITM positions.
• Moneyness can change as the underlying price moves; ITM → ATM → OTM before expiration is possible.

Bottom line

“In the money” describes options that would be profitable to exercise immediately on a price basis. While ITM options have intrinsic value and tend to command higher premiums, actual profitability requires that intrinsic value exceed the premium and transaction costs. Consider both intrinsic and extrinsic components, along with time and volatility, when evaluating or trading ITM options.