ITM, ATM, and OTM Options Explained

Understanding "moneyness" is essential for options trading

Quick Summary

ITM (In The Money)

Has intrinsic value. Higher cost, lower risk.

ATM (At The Money)

Strike ≈ Stock price. Balanced risk/reward.

OTM (Out of The Money)

No intrinsic value. Cheapest, highest risk.

In The Money (ITM)

An option is ITM when exercising it would be profitable (ignoring premium paid):

  • ITM Call: Stock price > Strike price
  • ITM Put: Stock price < Strike price
Example: Apple at $190. A $180 call is ITM—you could buy at $180 and sell at $190 = $10 intrinsic value.

Characteristics:

  • Higher premium (you're paying for built-in value)
  • Delta closer to 1.0 (moves ~dollar-for-dollar with stock)
  • Lower risk, lower percentage returns

At The Money (ATM)

An option is ATM when the strike price equals (or nearly equals) the current stock price.

Example: Microsoft at $380. A $380 call or $380 put is ATM.

Characteristics:

  • Highest time value of any strike
  • Delta around 0.50 (50% chance of finishing ITM)
  • Most liquid—tightest bid/ask spreads
  • Highest gamma (delta changes fastest near ATM)

Out of The Money (OTM)

An option is OTM when exercising it would NOT be profitable:

  • OTM Call: Stock price < Strike price
  • OTM Put: Stock price > Strike price
Example: Tesla at $240. A $260 call is OTM—why buy at $260 when market price is $240?

Characteristics:

  • Cheapest premiums (only time value, no intrinsic)
  • Most expire worthless (100% loss of premium)
  • Maximum leverage when they work

Visual Comparison (Stock at $100)

Strike Call Status Put Status
$90 ITM (+$10) OTM
$95 ITM (+$5) OTM
$100 ATM ATM
$105 OTM ITM (+$5)
$110 OTM ITM (+$10)

Which to Use?

Use ITM when:

  • You want lower risk
  • Stock replacement strategy
  • You're conservative

Use ATM when:

  • Balanced risk/reward
  • Spread strategies
  • Need liquidity

Use OTM when:

  • Speculative plays
  • Small capital
  • Cheap hedging

Analyze Options with AI

OpPreds scans options data to surface potentially interesting contracts—a starting point for your research.

Download on the App Store Get it on Google Play

For informational purposes only. Not financial advice.

Common Mistakes

  1. Buying only OTM for low price — They're cheap because most expire worthless
  2. Confusing calls vs puts — ITM for calls is OTM for puts at the same strike
  3. Ignoring time decay — ATM/OTM options lose value faster as expiration nears