What is "In the Money" (ITM) in Options?
ITM sounds like profit, but it's a technical status—not a guarantee. Learn what it really means and why it matters.
Quick Summary
An option is In the Money (ITM) when it has intrinsic value. For calls: stock price > strike price. For puts: stock price < strike price. Being ITM means the option has "real" value—but it doesn't guarantee profit. You still need to cover the premium you paid.
If you listen to traders talk, you'll often hear phrases like "I bought the ITM calls" or "My position finished In the Money."
To a beginner, "In the Money" sounds like a guarantee of profit. It sounds like you're walking away rich.
However, in options trading, "In the Money" (ITM) is a technical term, not a profit statement. It describes the relationship between the stock price and your strike price—and understanding it is the key to knowing exactly what you're buying.
The Definition: What Does ITM Mean?
THE CORE CONCEPT
An option is In the Money when it has Intrinsic Value
This means that if you were to exercise the option right now, it would be worth something tangible.
Logic: You have the right to buy stock at a discount compared to the current market price.
Logic: You have the right to sell stock at a premium compared to the current market price.
The Math: Checking if You're ITM
You don't need a calculator to figure this out—you just need to look at the scoreboard.
1. Call Options (The "Discount")
Why? Buying $150 stock for $140 is a $10 discount. The option has $10 of "real" (intrinsic) value.
2. Put Options (The "Markup")
Why? Selling $200 stock for $220 is a $20 markup. The option has $20 of "real" (intrinsic) value.
The Great Misconception: ITM ≠ Profit
Being "In the Money" does not automatically mean you've made a profit on the trade. Why? Because you paid a Premium to enter the trade.
The Break-Even Reality
Real-World Scenario
Setup: Buying an ITM Call
At Expiration: Stock at $101
You finished In the Money but still lost money because the stock didn't move enough to cover your premium.
Why Buy ITM Options?
If ITM options are more expensive (because they have intrinsic value), why do traders buy them?
High Probability (Delta)
ITM options have Delta of 0.60–0.90. They move closely with the stock—a "high conviction" trade.
Less Time Decay
Mostly "real value," so they suffer less from Theta decay than OTM options. Safer time pressure.
Stock Replacement
Deep ITM calls can substitute for stock. Pay $3,000 instead of $15,000 for similar upside exposure.
Frequently Asked Questions
Summary
"In the Money" simply means your ticket has value. It means you crossed the finish line.
- For Calls: You want the stock to go above your strike.
- For Puts: You want the stock to go below your strike.
- ITM ≠ Profit: You must be deep enough ITM to cover your premium.
