Pricing & Mechanics
Moneyness (ITM, ATM, OTM)
Also called: in the money, at the money, out of the money
Moneyness describes where an option's strike sits relative to the underlying price. In-the-money (ITM) options have intrinsic value, at-the-money (ATM) strikes sit at the current price, and out-of-the-money (OTM) options have only extrinsic value.
A call is ITM when the stock is above the strike and a put is ITM when the stock is below it. Moneyness determines the mix of intrinsic and extrinsic value, and through it the Greeks: ATM options have the most extrinsic value, the highest gamma and theta, and deltas near 0.50.
Traders also express moneyness in deltas or standard deviations rather than dollars so that strikes are comparable across tickers with different prices and volatilities. "The 25-delta put" and "the one-sigma call" are moneyness statements.
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Frequently asked questions
What happens to out-of-the-money options at expiration?
They expire worthless. Options in the money by $0.01 or more are exercised automatically by the OCC unless the holder instructs otherwise.