What does 'In The Money (ITM)' mean?
In the money (ITM) 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. An option that is in the money has intrinsic value, where as an option that is out of the money (OTM) does not.
Being ITM does not mean the trader is necessarily making a profit on the trade, because an option costs money to buy. ITM just means the option is worth exercising.
Breaking Down 'In The Money (ITM)'
In the money means that a stock option has intrinsic value and is worth exercising. 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. Each options contract represents 100 shares, so the profit is $3 x 100 = $300.
If John paid $3.50 for the call, then he wouldn't actually profit from the trade. He paid $350 ($3.50 x 100 shares) to make the one contract trade, but he only benefits $300, so he is actually losing $50. Despite this, the option is still considered ITM because at expiry the option will have a value of $3. An option with a strike price at $16 is out of the money (OTM) and therefore will be worthless at expiry; it has not intrinsic value.
How Call Options and Put Options Work
Options confer the buyer the right, but not the obligation, of buying or selling the underlying 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 underlying security to increase. They purchase put options, which enable them to sell, when they expect the value of the underlying security to decrease.
Options have intrinsic value when the strike price is lower, in the case of a call option, or higher, 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. As mentioned, ITM, doesn't mean the trade is making money. If buying an option that is already ITM, the trader will need it to move more ITM to make a profit. It needs to move by at least as much as the cost of the option, called the premium. If a trader buys an OTM option, they ideally want it to be ITM at expiry.
At the money (ATM) is another state an option can be in. It means the strike price and market price are the same.
The amount of premium paid for an option depends in large part on whether the option is ITM, ATM, or OTM. Because they have intrinsic value, ITM options cost the most upfront. OTM options cost less.
Other factors that significantly affect the premium are volatility and time until expiration. Higher volatility and a longer time until expiration mean a greater chance that the option could move ITM. Therefore, the premium cost will be higher than if volatility lower and/or time until expiration shorter.

Out Of The Money (OTM)
An out of the money option has no intrinsic value, but only possesses ... 
Strike Price
Strike price is the price at which the underlying asset of a ... 
Deep In The Money
A deep in the money option has a strike price significantly below ... 
Vanilla Option
A vanilla option gives the holder the right to buy or sell an ... 
Exotic Option
An exotic option is more complex or has a different structure ... 
Digital Option
Digital options have a fixed payout and risk, are based on price ...

Trading
The Basics Of Option Price
Learn how options are priced, what causes changes in the price, and pitfalls to avoid when trading options. 
Trading
Options Basics: How to Pick the Right Strike Price
The strike price has an enormous bearing on how your option trade will play out. Read on to learn about some basic principles to follow. 
Trading
What Is Option Moneyness?
In the money, at the money and out of the money define the current profitability of options positions. 
Trading
Sensitivity Analysis For BlackScholes Pricing Model
Trading options requires complex calculations, based on multiple parameters. Which factors impact option prices the most? 
Trading
Trading Options on Futures Contracts
Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ... 
Trading
The Ins and Outs of Selling Options
Selling options can seem intimidating, but with these tips you can enter the market with confidence. 
Trading
Google Stock Too Expensive for You? Try Options
Learn how to invest in Google (now Alphabet, Inc.) and other highvalue stocks with less capital by using options.

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 >> 
When is a put option considered to be 'in the money?'
Learn about put options, how these financial derivatives work, and when put options are considered to be in the money related ... Read Answer >> 
How is a put option exercised?
Learn the process, and what happens, when you exercise a put option. Also, read about alternatives to exercising an option. Read Answer >> 
How can derivatives be used to earn income?
Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >>