ITM / ATM / OTM
In short
In-the-money, at-the-money, out-of-the-money — option intrinsic value status
ITM call: stock is already above the strike — has real value now. ATM: stock is right at the strike. OTM: stock hasn't reached the strike yet — you're betting it will. OTM options are cheaper but need a bigger move to profit.
ITM options have intrinsic value plus time value. ATM options have maximum time value and highest gamma. OTM options consist only of time value and have lower premiums but require a significant move. Deep OTM options are cheap lottery tickets with low probability of profit.
Related concepts
- Moneyness — Moneyness tells you how far the strike price is from the current stock price. At-the-money (ATM) means strike ≈ current price. In-the-money (ITM) means the option has intrinsic value. Out-of-the-money (OTM) means it doesn't yet.
- Strike Price — The strike price is the agreed price in the option contract. For a call, you can buy the stock at the strike. For a put, you can sell at the strike. Choose your strike based on how big a move you expect.
- Delta — If a call has delta of 0.5, it gains $0.50 for every $1 the stock rises. Delta 1.0 means the option moves dollar-for-dollar with the stock. At-the-money options typically have delta near 0.5.
- Call Option — A call option is like a coupon that lets you buy a stock at today's price even in the future. If the stock rises, you profit. If it falls, you only lose what you paid for the coupon (the premium).