In-The-Money
An option is considered "in-the-money" when the current market price of the underlying asset is favourable relative to the option’s strike price.
● A call option is in the money when the market price of the asset is above the strike price (since you could buy at the lower strike price and sell at the higher market price).
● A put option is in the money when the market price of the asset is below the strike price (since you could sell at the higher strike price while the market price is lower).
Being in the money means the option has intrinsic value, though its total market price will also reflect time value and implied volatility.
Why in-the-money options matter to investors
Understanding when an option is in the money helps investors:
● Recognise when an option has intrinsic value
● Differentiate between options that are profitable to exercise and those that are not
● Manage positions as they approach expiry
● Assess risk and reward associated with different strategies
Options that are ITM may be exercised or sold, while those that are not may expire worthless. Knowing the difference supports informed decision-making.
However, options are complex financial products that involve significant risk and are not suitable for all investors. Understanding their mechanics, pricing factors, and the potential for loss is essential before considering any trading activity.
