In the money option

What Is "in the Money" (ITM)? The phrase in the money (ITM) refers to an option that possesses intrinsic value. An option that's in the money is an option that presents a profit opportunity due to the relationship between the strike price and the prevailing market price of the underlying asset.

1. What is ITM and OTM?
2. What is OTM ATM and ITM?
3. Is it better to buy ITM or OTM options?
4. Why would you buy an in the money option?

What is ITM and OTM?

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.

What is OTM ATM and ITM?

Any option that has an intrinsic value is classified as 'In the Money' (ITM) option. Any option that does not have an intrinsic value is classified as 'Out of the Money' (OTM) option. If the strike price is almost equal to spot price, then the option is considered as 'At the money' (ATM) option.

Is it better to buy ITM or OTM options?

Pros and Cons of OTM Options

For one, the cost to buy an OTM option is lower than the cost to buy an ITM option. This is because at the time of the purchase, OTM contracts have no intrinsic value. So, while the potential for a 100% loss is greater, the cost (and risk) to enter the trade is lower.

Why would you buy an in the money option?

Advantages of In the Money Call Options

Once a call option goes into the money, it is possible to exercise the option to buy a security for less than the current market price. That makes it possible to make money off the option regardless of current options market conditions, which can be crucial.