Loading the player...

What does 'In The Money' mean

In the money means that a call option's strike price is below the market price of the underlying asset or that the strike price of a put option is above the market price of the underlying asset. Being in the money does not mean you will profit, it just means the option is worth exercising. This is because the option costs money to buy.

BREAKING DOWN 'In The Money'

In the money means that your stock option is worth money and you can turn around and sell or exercise it. For example, if John buys a call option on ABC stock with a strike price of $12, and the price of the stock is sitting at $15, the option is considered to be in the money. This is because the option gives John the right to buy the stock for $12 but he could immediately sell the stock for $15, a gain of $3. If John paid $3.50 for the call, then he wouldn't actually profit from the total trade, but it is still considered in the money.

How Call Options and Put Options Work

Options confer the buyer the right, but not the obligation, of buying or selling a security at a certain price, known as the strike price, before a certain date, known as the expiration date. Traders purchase call options, which give them the right to buy, when they expect the market price of the security to increase. They purchase put options, which enable them to sell, when they expect the value of the security to decrease.

Options have intrinsic value when the strike price is higher, in the case of a call option, or lower, in the case of the put option, than the security's market price. The buyer can exercise the call or put and profit on the difference. 

In the Money, At the Money, and Out of the Money

Options are classified in three ways depending on the relationship of the strike price to the security's market price. In the money means the strike price is higher, in the case of a call, or lower, in the case of a put, than the market price. At the money means the strike price and market price are the same. Out of the money means the call option strike price is lower or the put option strike price is higher than the market price.

The amount of the premium paid for an option depends in large part on whether the option is in the money, at the money or out of the money. Because they have intrinsic value, in the money options are the most expensive. Out of the money options, which require a price movement to become valuable, cost much less.

RELATED TERMS
  1. Out Of The Money - OTM

    A call option with a strike price that is higher than the market ...
  2. At The Money

    A situation where an option's strike price is identical to the ...
  3. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  4. Near The Money

    An options contract where the strike price is close to the current ...
  5. Deep Out Of The Money

    An option with a strike price that is significantly above (for ...
  6. Bear Call Spread

    A type of options strategy used when a decline in the price of ...
Related Articles
  1. Trading

    What's the Strike Price?

    The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset. In a call option, the strike price is the price at which the ...
  2. Trading

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  3. Trading

    What Is Option Moneyness?

    Get the basics under your cap before you get into the game.
  4. Trading

    What Does It Mean When an Option is At The Money?

    The strike price of an at-the-money options contract is equal to its current market price. Options that are at the money have no intrinsic value, but may have time value.
  5. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  6. Trading

    How To Manage A Bull Call Spread

    A bull call spread, also called a vertical spread, involves buying a call option at a specific strike price and simultaneously selling another call option at a higher strike price.
  7. Trading

    Income Strategies for Your Portfolio to Make Money Regularly

    Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
  8. Trading

    Understanding Bull Spread Option Strategies

    Bull spread option strategies, such as a bull call spread strategy, are hedging strategies for traders to take a bullish view while reducing risk.
  9. Trading

    The Basics of Options Profitability

    The adage "know thyself"--and thy risk tolerance, thy underlying, and thy markets--applies to options trading if you want it to do it profitably.
RELATED FAQS
  1. What is the difference between in the money and out of the money?

    Learn about how the difference between in the money and out of the money options is determined by the relationship between ... Read Answer >>
  2. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  3. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  4. When is a call option considered to be "in the money"?

    Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is ... Read Answer >>
  5. When is a put option considered to be "in the money"?

    Learn about put options, what they are, how these financial derivatives operate and when put options are considered to be ... Read Answer >>
  6. Where did the terms in-the-money and out-of-the-money come from?

    Learn what the terms "in the money" and "out of the money" mean, where the terms come from, and how investors use the terms ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center