Deep Dive · Lesson 6
In the Money, At the Money,
and Out of the Money
Big Idea
Three terms describe where an option stands relative to the strike price:
- In the money = the option has intrinsic value
- At the money = the stock price is close to the strike price
- Out of the money = the option has no intrinsic value
These terms answer: does the option have intrinsic value right now?
Why These Terms Matter
They explain whether an option is already useful, almost useful, or not useful right now. They also help explain why different options have different premiums.
The strike price stays the same; the stock price changes. That relationship determines the status.
Three Key Terms
In the Money
Option has intrinsic value — using it right now gives a better price than the market.
At the Money
Stock price is at or very near the strike price — little or no intrinsic value, but may still have time value.
Out of the Money
No intrinsic value — using the option right now would not help the buyer.
In the Money
When the Option Already Has Value
Call — In the Money
Acme at $60, call strike $50. You have the right to buy at $50 while the market is $60. That is useful — the option is in the money.
Intrinsic value: $60 − $50 = $10 / share × 100 = $1,000
Put — In the Money
Acme at $40, put strike $50. You have the right to sell at $50 while the market is $40. That is useful — the option is in the money.
Intrinsic value: $50 − $40 = $10 / share × 100 = $1,000
At the Money
When the Option Is Right on the Line
Call — At the Money
Acme at $50, call strike $50. You have the right to buy at $50 — the same as the market price. No advantage right now, so little or no intrinsic value. But the option may still have time value since a small move could make it in the money.
Put — At the Money
Acme at $50, put strike $50. The same situation from the put side — little or no intrinsic value, but may have time value.
Out of the Money
When the Option Has No Intrinsic Value
Call — Out of the Money
Acme at $40, call strike $50. You have the right to buy at $50 while the market is only $40. No advantage — the option is out of the money with no intrinsic value.
Put — Out of the Money
Acme at $60, put strike $50. You have the right to sell at $50 while the market is $60. No advantage — the option is out of the money with no intrinsic value.
Reference Tables
Calls
| Stock vs Strike | Call Status | Intrinsic Value? |
|---|---|---|
| Stock above strike | In the money | Yes |
| Stock near strike | At the money | Little or none |
| Stock below strike | Out of the money | No |
Memory: Calls want the stock price to climb above the strike price.
Puts
| Stock vs Strike | Put Status | Intrinsic Value? |
|---|---|---|
| Stock below strike | In the money | Yes |
| Stock near strike | At the money | Little or none |
| Stock above strike | Out of the money | No |
Memory: Puts want the stock price to fall below the strike price.
Same Strike Price, Different Results
| Type | Stock | Strike | Status |
|---|---|---|---|
| Call | $60 | $50 | In the money |
| Call | $50 | $50 | At the money |
| Call | $40 | $50 | Out of the money |
| Put | $60 | $50 | Out of the money |
| Put | $50 | $50 | At the money |
| Put | $40 | $50 | In the money |
A higher stock price helps calls. A lower stock price helps puts. The same stock price can mean very different things depending on whether the option is a call or a put.
Important Distinctions
In the Money Does Not Always Mean Profitable
You buy a call with a strike price of $50 and pay a premium of $700. At expiration the stock is at $55.
Intrinsic value: $5 / share × 100 = $500. Premium paid: $700. Net result: −$200.
In the money means the option has intrinsic value. It does not automatically mean the buyer made money.
Out of the Money Does Not Always Mean Worthless Before Expiration
Before expiration, an out-of-the-money option may still have time value. Example: Acme at $50, call strike $55, with 3 months to go — it still has value because Acme might rise.
At expiration, out-of-the-money options usually expire worthless.
Interactive Checks
Check 1 of 6
Acme is at $60. The call has a strike price of $50.
Is the call in the money, at the money, or out of the money?
Check 2 of 6
Acme is at $40. The call has a strike price of $50.
Is the call in the money, at the money, or out of the money?
Check 3 of 6
Acme is at $40. The put has a strike price of $50.
Is the put in the money, at the money, or out of the money?
Check 4 of 6
Acme is at $60. The put has a strike price of $50.
Is the put in the money, at the money, or out of the money?
Check 5 of 6
Acme is at $50. The call has a strike price of $50.
What is this option usually called?
Check 6 of 6
You buy a call for $700. Strike price is $50. At expiration the stock is at $55. The contract covers 100 shares.
Which statement is most accurate?
Common Beginner Mistakes
- ❌ Thinking in the money means profitable. It means the option has intrinsic value. The premium matters.
- ❌ Thinking out of the money means worthless before expiration. Before expiration it may still have time value. At expiration, out-of-the-money options usually expire worthless.
- ❌ Forgetting that calls and puts work opposite ways. For calls, higher stock price helps. For puts, lower stock price helps. The same stock price can make a call in the money and a put out of the money, or the reverse.
Quick Memory Tool
- For calls: Stock above strike = ITM / Stock near strike = ATM / Stock below strike = OTM
- For puts: Stock below strike = ITM / Stock near strike = ATM / Stock above strike = OTM
Next Lesson
Exercise, assignment, and expiration — what can happen when an option buyer uses the option, what it means for the seller, and what happens when the option reaches its deadline.