What is the concept of In the money, At the money and Out of the money in respect of Options?

In- the- money options (ITM) – An in-the-money option is an option that would lead to positive cash fl ow to the holder if it were exercised immediately. A Call option is said to be in-the-money when the current price stands at a level higher than the strike price. If the Spot price is much higher than the strike price, a Call is said to be deep  Derivatives Trading  in-the-money option. In the case of a Put, the put is in-the-money if the Spot price is below the strike price. At-the-money-option (ATM) – An at-the money option is an option that would lead to zero cash fl ow if it were exercised immediately. An option on the index is said to be “at-the-money” when the current price equals the strike price. Out-of-the-money-option (OTM) – An out-of- the-money Option is an option that would lead to negative cash fl ow if it were exercised immediately. A Call option is out-of-the-money when the current price stands at a level which is less than the strike price. If the current price is much lower  than the strike price the call is said to be deep out-of-the money. In case of a Put, the Put is said to be out-of-money if current price is above the strike price.

 

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