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Options fundamentals2 minute read
What do in the money, at the money, and out of the money mean?
Learn how an option's strike compares with the underlying price and why the meaning differs for calls and puts
Prepared by Mark · Primary sources below
Direct answer
Moneyness compares an option's strike price with the current price of its underlying. A call is in the money when the underlying is above its strike, while a put is in the money when the underlying is below its strike. At the money describes a strike near the underlying price, and out of the money describes the opposite relationship
Calls and puts reverse the comparison
A call is in the money when the underlying price is higher than its strike because exercising could buy below the current market price. A put is in the money when the underlying is lower than its strike because exercising could sell above the current market price
Intrinsic value only exists in the money
The amount an option is in the money is its intrinsic value. At-the-money and out-of-the-money options have no intrinsic value, but they can still have a market premium because time and uncertainty remain before expiration
Moneyness is only one input
An in-the-money option is not automatically profitable for its buyer after the premium paid is considered. Time to expiration, implied volatility, the bid and ask, and the original trade price can all affect a position's result
Sources and further reading
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