In the Money (ITM)

Options contracts grant their owners the right (yet not the obligation) to buy or sell a specific asset (normally 100 shares of a stock) at a specific price (the option's strike price) until or upon the contract's expiration. Call options grant their owners the right to buy an asset, while put options grant their owners the right to sell an asset.

What's the significance here? In the Money Defined

An options contract is thought of "in of the money" assuming that it has intrinsic value, meaning that on the off chance that its owner exercised it, they would pay less than the current market value for a stock (on account of a call option) or sell a stock for more than its current market value (on account of a put option).
As such, a call option is in the money in the event that its strike price is lower than its spot price (market value), and a put option is in the money in the event that its strike price is higher than its spot price.

In the Money (ITM) versus Out of the Money (OTM) Options

Something contrary to in the money is out of the money. Options contracts that don't have intrinsic value are viewed as out of the money.
On the off chance that a call option's strike price is higher than the current market price of the underlying stock, it is out of the money since, supposing that its owner exercised it, they would buy the stock for more than it's worth. In the event that a put option's strike price is below the current market price of the underlying stock, it is out of the money since, supposing that its owner exercised it, they would sell the stock for less than it's worth.
Since no investor would need to overpay for a stock (or be underpaid for a stock they are selling), options contracts that are out of the money are not generally exercised and are quite often allowed to lapse worthless.

When Is a Call Option in the Money?

A call option is in the money on the off chance that its strike price is lower than its spot price (the current market price of the underlying stock). This means that the owner of the option could exercise it to buy 100 shares of the underlying stock for not as much as market value.

When Is a Put Option In the Money?

A put option is in the money when its strike price is higher than its spot price. This means that the option's owner could exercise it to sell 100 shares of the underlying stock for more than their market value.

In-the-Money Option Example: Acme Adhesives

Suppose the stock of a made up company called Acme Adhesives is currently trading at $22 per share. On the off chance that an investor is bullish on the stock (figures it will increase in price) since it has strong fundamentals and as of late diminished its materials costs, they could wager on it becoming more expensive by buying a call option contract for 100 shares with a strike price of $24 that lapses in about two months.
Since the stock currently trades at $22, this call option is out of the money, so the premium the investor paid for it is generally low since it needs intrinsic value. Following five weeks, Acme cement's stock price ascends to $26 due to higher-than-determined earnings and growth in sales.
The investor's call option contract is presently in the money in light of the fact that it very well may be exercised to purchase shares at lower than market value. The investor could now either exercise the contract and pay $2,200 (rather than the market value of ($2,600) for 100 shares or resell the contract for a profit.

How Does Being in the Money Affect an Option's Premium?

The moneyness of an option is constantly remembered for its premium (price) on the grounds that being in the money gives an option intrinsic (real) value. An option's premium depends on three things — its moneyness, the amount of time staying until its expiration, and the volatility of the underlying asset.
Thus, assuming an option is in the money by $3, its premium would be $3 plus its time value plus its volatility value. For instance, an option contract that is in the money by $3 and has $1 worth of volatility and time value would cost an investor $400 ($4 * 100 shares).
Since the intrinsic value of an in-the-money options contract is remembered for its premium, an investor can profit off of the contract assuming that it moves further into the money, in this way expanding its intrinsic value. Assuming that the price of the underlying stock remaining parts unchanged, the investor would experience loss on the trade due to the premium they paid for the contract.

What Happens When Options Expire in the Money?

Assuming that an option is in the money and approaching expiration, it is in its owner's best interest to one or the other sell or exercise the option whether or not they brought in money on it. Sometimes, notwithstanding, an investor may be inaccessible at that point or neglect to do this.
On the off chance that an investor doesn't resell or exercise a terminating option, the investor's brokerage (or the Option Clearing Corporation) for the most part exercises the option automatically for the investor's sake. On account of a call option, this means purchasing 100 shares of the underlying stock at the strike price. On account of a put, this means selling 100 shares.
On the off chance that the investor needs more money in their account (or enough shares in their possession) to exercise, the contract might be automatically exercised on margin (money borrowed from the brokerage), or the brokerage might endeavor to contact the investor.
Investors ought to constantly monitor their options contracts, particularly as they approach expiration. Every investor ought to check with their broker for their specific policies on ITM options that are approaching expiry.

Features

• A put option is in the money in the event that the market price is below the strike price.
• A call option is in the money (ITM) in the event that the market price is over the strike price.
• Investors ought to account for the costs of buying options while figuring possible profit from an in the money option.
• An option can likewise be out of the money (OTM) or at the money (ATM).
• In-the-money options contracts have higher premiums than different options that are not ITM.

FAQ

The amount Is an At-the-Money Option Worth?

At-the-money options are options where the strike price is equivalent to the market price of the underlying security. In such an occurrence, no money can be made by practicing the option. Subsequently, the option has no intrinsic value.

What Does Deep in the Money Mean?

Deep in the money alludes to options that are in the money by no less than $10. For a call option, that means the strike price would be more than $10 under the overall market price. For a put option, the strike price would be more than $10 over the market price. Due to how deeply they are in the money, the prices of these options ordinarily move just as the price of the underlying asset moves.

What Is a Strike Price?

A strike price is the price designated by an options contract as the price at which an investor has the privilege to buy (with a call option) or sell (with a put option) the contract's underlying security.