Options Concepts
ITM, ATM & OTM
Explained
"Moneyness" sounds technical but it's simple — it just describes where a strike sits relative to the current price. Get this right and the rest of options pricing starts to make sense.
What is moneyness?
Moneyness describes the relationship between an option's strike price and the current spot price of the underlying. It tells you whether exercising the option right now would have value — and it drives how the option is priced and how it behaves.
The three states
- ATM (At The Money) — strike ≈ spot. These options have the most time value and the highest sensitivity to price moves and to volatility.
- ITM (In The Money) — a call is ITM when spot > strike; a put is ITM when spot < strike. ITM options carry intrinsic value, cost more, and move more closely with the underlying.
- OTM (Out of The Money) — a call is OTM when spot < strike; a put is OTM when spot > strike. OTM options have no intrinsic value — they're made up entirely of time value, so they're cheaper but riskier.
Intrinsic value vs time value
Every option premium splits into two parts:
- Intrinsic value — the in-the-money amount (e.g. a call with spot 100, strike 95 has 5 of intrinsic value). OTM options have zero intrinsic value.
- Time value — everything above intrinsic value: the price of remaining time and uncertainty. It decays toward zero as expiry approaches (theta).
A quick example
Say NIFTY spot is 22,500 (illustrative):
- 22,400 call → ITM (spot above strike), has intrinsic value.
- 22,500 call/put → ATM (strike at spot), mostly time value.
- 22,700 call → OTM (spot below strike), only time value, cheaper.
Which should you trade?
- ITM — higher cost, higher delta (moves more 1-for-1 with spot), higher probability of finishing in-the-money. Favoured for directional conviction.
- ATM — balanced; maximum gamma and vega, popular for straddles/strangles and event plays.
- OTM — cheap, large percentage payoff if it works, low probability. Favoured for lottery-style or hedging trades.
See moneyness on a live chain
TradePulse highlights ATM and ITM/OTM strikes on the live option chain, with Greeks to show how each behaves.