Financial Glossary
In-the-Money (ITM)
Profitable territory: when an option has intrinsic value and is worth exercising.
What is In-the-Money?
An in-the-money (ITM) option is one with intrinsic value. For calls, ITM means the stock price is above the strike price. For puts, ITM means the stock price is below the strike price. A $100 call is ITM if the stock is $105 (worth $5 of intrinsic value). A $100 put is ITM if the stock is $95 (worth $5 of intrinsic value).
In-the-money options are profitable if exercised immediately. But traders rarely exercise; they sell the ITM option for its intrinsic value plus remaining time value. An ITM option is worth at least its intrinsic value at expiration but may be worth more before expiration due to time value and volatility.
ITM vs. OTM vs. ATM
In-the-money options are less volatile than out-of-the-money options. A deep ITM call (stock at $110, strike $100) has high delta (~0.90), meaning it moves almost dollar-for-dollar with the stock—it's like holding stock. Out-of-the-money options have lower deltas and more leverage. For buying options, OTM offers more leverage but lower probability; ITM offers higher probability but less explosive gains.
Deep ITM options risk automatic assignment at expiration if you don't want to hold the stock. For covered calls (owning stock and selling calls), assignment is desired—it exits your position at a good price.
Disclaimer: In-the-money doesn't guarantee profit if you paid premium above intrinsic value. Assignment risk is high for ITM options. Before trading ITM options, consult a qualified financial advisor. Options involve substantial risk.