# Moneyness: ITM, ATM and OTM > Moneyness describes where an option's strike sits relative to the underlying price. Learn ITM, ATM and OTM for calls and puts, and how each behaves. Source: https://learn.tradelabsai.com/options/moneyness-itm-atm-and-otm/ Track: Options · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Moneyness: ITM, ATM and OTM", https://learn.tradelabsai.com/options/moneyness-itm-atm-and-otm/ Moneyness describes the relationship between an option's strike price and the current price of the underlying. An option is in the money (ITM) if it has intrinsic value, at the money (ATM) if the strike is at or near the current price, and out of the money (OTM) if it has no intrinsic value. Moneyness affects an option's price, how sensitive it is to moves in the underlying, how fast it decays and how likely it is to be exercised. ## Moneyness for calls and puts Calls and puts are mirror images. A strike below the current price makes calls in the money and puts out of the money. | Stock at $100 | Call is | Put is | |---|---|---| | Strike $90 | ITM by $10 | OTM by $10 | | Strike $100 | ATM | ATM | | Strike $110 | OTM by $10 | ITM by $10 | ``` call is ITM when underlying price > strike put is ITM when underlying price < strike ``` ## How moneyness changes option behaviour | | Deep ITM | ATM | Far OTM | |---|---|---|---| | Premium | Highest | Middle | Lowest | | Intrinsic value | Most of the premium | Zero or near zero | Zero | | Extrinsic value | Low | Highest | Low | | Delta (calls) | Near 1.0 | Near 0.5 | Near 0 | | Gamma | Low | Highest | Low | | Theta in dollars | Low | Highest | Low | | Behaves like | The underlying | A balanced bet | A lottery ticket | See [Delta](https://learn.tradelabsai.com/options/delta/), [Gamma](https://learn.tradelabsai.com/options/gamma/) and [Theta](https://learn.tradelabsai.com/options/theta/). **Example: Three calls, one move** A stock at $100 rises $5 in one day. Approximate changes in one month calls, using their deltas: - **$85 call (deep ITM, delta 0.95):** gains about $4.75, almost one for one with the stock. - **$100 call (ATM, delta 0.52):** gains about $2.60. - **$120 call (far OTM, delta 0.06):** gains about $0.30, but from a price of $0.25, so its percentage gain is far larger. Percentage returns are highest for OTM options on big moves, but they also lose 100% most often. ## Moneyness and probability A common rule of thumb treats delta as the rough probability that an option finishes in the money. An ATM option is roughly 50%, a 0.20 delta OTM option roughly 20%. This is an approximation; strictly, a related figure from pricing models (N(d2) in Black Scholes) is the risk neutral probability. See [Black-Scholes Model](https://learn.tradelabsai.com/options/black-scholes-model/). ## Measuring moneyness precisely Traders often go beyond ITM, ATM and OTM labels: - **Percentage moneyness:** strike divided by underlying price, such as 90% or 110%. - **Delta:** describing options as "25 delta puts" or "10 delta calls", common in volatility trading. See [Volatility Smile and Skew](https://learn.tradelabsai.com/volatility/volatility-smile-and-skew/). - **Log moneyness and standard deviations:** used in quantitative models to compare across expiries and volatility levels. ## Moneyness changes over time Moneyness is not fixed. An OTM call becomes ITM if the stock rises past the strike. Near expiration, small moves can flip an option between ITM and OTM, which is why at the money options are so sensitive near expiry. See [Option Expiration Dates](https://learn.tradelabsai.com/options/option-expiration-dates/). ## Choosing moneyness for a strategy | Strategy | Typical moneyness | |---|---| | Stock replacement | Deep ITM calls | | Directional bet with balanced cost | ATM or slightly OTM | | Cheap hedge against crashes | OTM puts. See [Protective Put](https://learn.tradelabsai.com/options/protective-put/) | | Covered calls | Slightly OTM calls. See [Covered Call](https://learn.tradelabsai.com/options/covered-call/) | | Cash secured puts | OTM puts. See [Cash-Secured Put](https://learn.tradelabsai.com/options/cash-secured-put/) | | Straddles | ATM. See [Straddle](https://learn.tradelabsai.com/options/straddle/) | ## Common mistakes - **Thinking ITM means profitable:** an ITM option bought for more than its intrinsic value can still lose money. - **Overbuying far OTM options** because they are cheap. - **Forgetting moneyness shifts** as the underlying moves. ## Frequently asked questions ### What does in the money mean for options? A call is in the money when the underlying price is above the strike; a put is in the money when the underlying price is below the strike. ### Is it better to buy ITM or OTM options? ITM options cost more but behave more like the underlying and need less movement; OTM options are cheaper but less likely to pay off. ### What is an at the money option? An option whose strike is equal or very close to the current underlying price, which gives it the most time value. Next, learn what happens when options are used in [Exercise and Assignment](https://learn.tradelabsai.com/options/exercise-and-assignment/). ## Continue learning - Next lesson: [Exercise and Assignment](https://learn.tradelabsai.com/options/exercise-and-assignment/) - Previous lesson: [Intrinsic and Extrinsic Value](https://learn.tradelabsai.com/options/intrinsic-and-extrinsic-value/) - Related: [Intrinsic and Extrinsic Value](https://learn.tradelabsai.com/options/intrinsic-and-extrinsic-value/): An option's price splits into intrinsic value and extrinsic or time value. Learn how to calculate each, what drives extrinsic value and why it decays to zero. - Related: [Strike Price](https://learn.tradelabsai.com/options/strike-price/): The strike price is the fixed price at which an option can be exercised. Learn how strikes affect cost, probability and payoff, and how traders choose them. - Related: [Delta](https://learn.tradelabsai.com/options/delta/): Delta measures how much an option's price moves for a $1 move in the underlying. Learn delta for calls and puts, delta as a hedge ratio and as a rough probability. - Related: [Volatility Smile and Skew](https://learn.tradelabsai.com/volatility/volatility-smile-and-skew/): Implied volatility differs by strike, forming a smile or skew. Learn the shapes in equities, FX and commodities, why they exist and how to measure skew. - Related: [Exercise and Assignment](https://learn.tradelabsai.com/options/exercise-and-assignment/): Exercise is when an option holder uses their right; assignment is when a seller must fulfil it. Learn the process, automatic exercise and how to manage it.