6 Quick Examples To Mastering Option Moneyness (ITM, OTM & ATM)

The moneyness on a single option contract is a fundamental concept to master when trading. I'd even say it's a requirement before you put real money into the market that you completely understand these relationships. It only gets more difficult as you add complex options strategies.

Because of an option's moneyness, the option can be distinguished in ITM, ATM, OTM. These relationships help determine the intrinsic value which is a key factor in option pricing overall.

Since I continue to see beginners struggle with this concept, I put together these 6 quick examples below to help you figure this moneyness out once and for all. Before you start you also may want to check out our Video Tutorial on Option Moneyness found in the education dashboard.

In-The-Money (ITM)

For a long call option, the option will be ITM if the strike price is below the current value of the stock trading in the market.

Call ITM

For a long put option, the option will be ITM if the strike price is above the current value of the stock trading in the market.

Put ITM

Out-Of-The-Money (OTM)

For a long call option, the option would be OTM if the strike price is above the current value of the stock trading in the market.

Call OTM

For a long put option, the option would be OTM if the strike price is below the current value of the stock trading in the market.

Put OTM

At-The-Money (ATM)

For both long calls and long puts, the option is considered ATM when the strike price and stock price are the same.

Call ATM

Consider this the "tipping point" between an option being OTM and ITM. Generally it is hard to find ATM options that have the exact same strike price as the stock, so anything within a couple points of the closest strike price is considered ATM for options traders.

Put ATM

What About Short Options?

Short option contracts are just the mirror image of the above long contract payoff diagrams. Most of the option moneyness examples we have here would be the reverse for short option contracts. So feel free to bookmark this page and use it as a reference guide in the future.

If you want to learn more about short options, watch these two video tutorials on Short Calls and Short Puts from our video tutorial library. And as always, please add your comments and suggestions below!

  • Bill Place

    Great job as usual Kirk

  • http://www.facebook.com/penelope.frey Penelope Frey

    I understand what ITM & OTM mean, but I can't seem to make heads or tails of your charts. If you are shooting to educate the beginner then I'd make your charts more clear (i.e. a beginner has probably never seen this type of chart even if they are standard in the options trading world).

    • http://optionalpha.com/ Kirk Du Plessis

      I see what you mean Penelope and I'll try to add more detailed charts going forward. Thanks for the comment!

      • Bryan

        Totally agree us rookies need the dumbified versions haha

  • http://optionalpha.com/ Kirk Du Plessis

    Thanks for letting me know I’ll look into it.

    • Mike Allums

      Actually, as I reviewed a number of the articles/blog posts I found that several video hyperlinks didn't work. Just an FYI.

      • http://optionalpha.com/ Kirk Du Plessis

        Might be a plugin issue.

  • http://optionalpha.com/ Kirk Du Plessis

    The ecourse is 100% free (just need your email) and our membership is $47 per month currently after a 7 day trial.