What is In and Out (Of the Money)
**In the Money vs. Out of the Money: What's the Difference?**
In options trading, the difference between "in the money" (ITM) and "out of the money" (OTM) is a matter of the strike price's position relative to the market value of the underlying stock, called its moneyness. An ITM option is one with a strike price that has already been surpassed by the current stock price.
Out of the money is also known as OTM, meaning an option has no intrinsic value, only extrinsic value. A call option is OTM if the underlying price is trading below the strike price of the call. A put option is OTM if the underlying's price is above the put's strike price.
For example if $TSLA
If it's trading at $750 dollars, and there is a call option being traded for $800C, that option is still (OTM), out of the money because it cannot be executed. It's still a higher risk option since there is no intrinsic value in that option until it reaches $800 dollars where it can be actually excerised.
If we used the same example but for a put option on $TSLA when the stock is trading at $750 and we have a put option being traded at $800P, that option is (ITM), in the money because when you have a put option traded at $800 dollars, it gives you the right to sell the shares at $800 dollars, while the stock is trading at $750 dollars, you have $50 dollars net in the money.
Updated on: 17/03/2022