In the Money vs Out of the Money: Option Moneyness for Calls and Puts

An option is in the money (ITM) when exercising it right now would be worth something: a call is in the money when the stock is above the strike, and a put is in the money when the stock is below the strike. An option is out of the money (OTM) when exercising it would be worthless, and at the money (ATM) when the strike is at or very near the current stock price.

In short: moneyness describes where the stock price sits relative to the strike. For calls, ITM means stock above strike; for puts, ITM means stock below strike. The amount an option is in the money is its intrinsic value. OTM options have no intrinsic value, so their entire premium is time value. In the money does not mean profitable: an ITM option can still lose money if you paid more for it than it is worth at expiration.

The misconception: “in the money” means “making money”

This is the most common confusion in options. Being in the money says nothing about whether your position is profitable. If you paid $2.60 for a $50 call and the stock finishes at $51, the call is in the money by $1, worth $100, and you’ve lost $160. Profit depends on the price you paid; moneyness doesn’t.

The definitions, side by side

	Call	Put
In the money	Stock price above strike	Stock price below strike
At the money	Stock price ≈ strike	Stock price ≈ strike
Out of the money	Stock price below strike	Stock price above strike

With hypothetical Maple Widgets Inc. at $50:

Strike	Call is…	Call intrinsic	Put is…	Put intrinsic
$40	ITM	$10.00	OTM	$0
$45	ITM	$5.00	OTM	$0
$50	ATM	$0	ATM	$0
$55	OTM	$0	ITM	$5.00
$60	OTM	$0	ITM	$10.00

Notice the symmetry. At any strike other than the current price, either the call or the put is in the money, never both.

People also use deep in the money and far out of the money loosely for options well away from the current price. There’s no official cut-off.

How moneyness shows up in the price

Every premium is intrinsic value plus extrinsic (time) value, explained in how option premiums work. Moneyness determines how a premium splits between the two. Model prices for Maple options with 60 days left (Black-Scholes, assumed 30% volatility, 4% rates, rounded):

Option	Moneyness	Premium	Intrinsic	Time value
$45 call	ITM by $5	$5.85	$5.00	$0.85
$50 call	ATM	$2.60	$0	$2.60
$55 call	OTM by $5	$0.85	$0	$0.85
$45 put	OTM by $5	$0.55	$0	$0.55
$50 put	ATM	$2.25	$0	$2.25
$55 put	ITM by $5	$5.50	$5.00	$0.50

Three patterns appear in every options chain:

ITM options cost more, because you’re buying intrinsic value.
ATM options carry the most time value, because the outcome is most uncertain.
OTM options are cheap, because they need a move just to be worth anything at expiration.

How moneyness affects sensitivity

An ITM option behaves more like the stock; an OTM option behaves more like a lottery ticket with a deadline. A measure called delta captures this: roughly how much the option price changes for a $1 move in the stock. In the same model, the $45 call has a delta of about 0.84, the $50 call about 0.55, and the $55 call about 0.25. So a $1 rise in Maple would add roughly $84, $55, and $25 per contract respectively.

Delta is sometimes used as a rough stand-in for the probability of finishing in the money. That shorthand has limits, which are covered in delta explained.

A worked example: ITM vs OTM calls at expiration

Compare two ways to bet on Maple rising over 60 days:

ITM: buy the $45 call at $5.85, cost $585, breakeven $50.85.
OTM: buy the $55 call at $0.85, cost $85, breakeven $55.85.

Maple at expiry	$45 call value	$45 call P/L	$55 call value	$55 call P/L
$40	$0	-$585	$0	-$85
$45	$0	-$585	$0	-$85
$50	$500	-$85	$0	-$85
$54	$900	+$315	$0	-$85
$56	$1,100	+$515	$100	+$15
$60	$1,500	+$915	$500	+$415
$70	$2,500	+$1,915	$1,500	+$1,415

What the table shows:

If the stock doesn’t move, both lose $85. The ITM call keeps its $5 of intrinsic value; only the time value is gone.
On a moderate rise to $54, the ITM call makes $315 while the OTM call expires worthless. The OTM buyer was right about the direction and still lost everything.
On a large rise to $60, the OTM call returns 488% on $85, while the ITM call returns 156% on $585. The ITM call makes more dollars; the OTM call makes a higher percentage.
On a fall, the ITM call can lose more dollars ($585 vs $85), because it cost more.

Neither is “better.” They are different bets: the ITM call pays across more outcomes, while the OTM call costs less and pays only on a big move.

The same logic for puts

Puts work in mirror image. With Maple at $50:

ITM: the $55 put at $5.50 costs $550, breakeven $49.50.
OTM: the $45 put at $0.55 costs $55, breakeven $44.45.

Maple at expiry	$55 put P/L	$45 put P/L
$60	-$550	-$55
$50	-$50	-$55
$46	+$350	-$55
$44	+$550	+$45
$40	+$950	+$445

The OTM put needs Maple to fall more than 11% just to break even; the ITM put starts profiting below $49.50.

Moneyness changes constantly

Moneyness is not a fixed property of a contract. A $50 call that is OTM this morning can be ITM this afternoon if the stock jumps. That matters most near expiration:

At expiration, OCC exercises equity options that are in the money by at least $0.01 automatically under its exercise-by-exception procedure, unless the holder’s broker submits other instructions. An option that is barely in the money at the close can turn into 100 shares in your account. See how exercise and assignment work.
For writers, a short option that moves into the money becomes a likely assignment, and American-style options can be assigned early.
A stock that closes very near a strike at expiration creates uncertainty about whether an option will be exercised. This is pin risk, covered in what happens at expiration.

What can go wrong

Confusing ITM with profitable. Your breakeven, not the strike, decides whether you made money.
Buying OTM because it’s cheap. Low cost and low odds go together. OTM options expire worthless whenever the stock fails to reach the strike.
Forgetting that small ITM amounts still trigger exercise. A long option that is $0.05 in the money at the close can be exercised automatically, leaving you with a stock position (or a margin call) you didn’t plan for.
Writers ignoring moneyness changes. A short put that slides into the money can be assigned well before expiration.

Common questions

Is an at-the-money option in the money?

Not quite. “At the money” is a label for the strike closest to the current price, and it usually has little or no intrinsic value. At expiration, the precise rule is what counts: a call is in the money only if the stock is above the strike, and OCC’s automatic exercise applies to options at least $0.01 in the money. An option exactly at the strike has no intrinsic value and is not automatically exercised.

Which is riskier, ITM or OTM?

They’re risky in different ways. An OTM option is more likely to expire worthless, so a buyer is more likely to lose the whole premium, but the dollar amount at stake is smaller. An ITM option costs more, so more dollars are at risk, although it pays something across a wider range of outcomes. For writers, short ITM options carry more assignment risk.

Does moneyness use the last trade or the closing price?

For automatic exercise at expiration, OCC generally uses the underlying’s official closing price on expiration day. During the trading day, brokers display moneyness based on the current price, which can change minute to minute.

Can an option go from OTM to ITM after the close?

Yes, in effect. Stocks keep trading after 4:00 p.m. Eastern, and news can move them before exercise decisions are final. A holder can submit instructions to exercise an option that closed out of the money, so a writer can’t assume that an option which was OTM at the closing bell won’t be exercised.

Do ITM options get exercised before expiration?

They can be, if they’re American style, but holders usually sell instead, because exercising early gives up any remaining time value. Early exercise is most common for deep ITM options with almost no time value, such as calls just before a large dividend.

The takeaway

Moneyness compares the stock price to the strike. Calls are in the money above the strike, puts below. ITM options cost more and behave more like the stock; OTM options are cheaper, all time value, and need a move to pay off. None of that tells you whether a position is profitable: only the price you paid does.