Option Moneyness: In the Money, At the Money, and Out of the Money

What is Option Moneyness?

Option moneyness describes the relationship between an option's strike price and the relevant price of the underlying asset.

The basic labels are:

1In the money (ITM)
2At the money (ATM)
3Out of the money (OTM)

For a call option, the contract is in the money when the underlying price is above the strike.

For a put option, the contract is in the money when the underlying price is below the strike.

CFA Institute uses moneyness as one of the basic building blocks of option valuation because the relationship between spot and exercise price determines whether immediate exercise would have value.

Call moneyness

Suppose a stock trades at $105.

For call options:

1$95 strike call  -> in the money
2$105 strike call -> at the money
3$115 strike call -> out of the money

The $95 call gives the holder the right to buy something worth $105 for $95, so it has $10 of Option Intrinsic Value.

The $115 call does not have immediate exercise value because buying for $115 when the stock is available for $105 would make no economic sense.

That does not make the $115 call worthless. It may still have substantial Option Time Value because the stock could rise above $115 before expiration.

Put moneyness

Now use the same $105 stock price for puts:

1$115 strike put -> in the money
2$105 strike put -> at the money
3$95 strike put  -> out of the money

The $115 put gives the holder the right to sell for $115 when the stock is worth $105, so it has $10 of immediate exercise value.

The $95 put has no immediate exercise value because selling for $95 would be worse than selling in the market for $105.

Again, an out-of-the-money option can still trade for a positive premium because future movement before expiration can make the option valuable.

Moneyness is not profitability

This is one of the most important distinctions for beginners.

An option can finish in the money and still lose money for the buyer.

Suppose a trader buys a $100 strike call for $8.

At expiration, the stock is $105.

The option is in the money by $5, but the trader paid $8.

Ignoring fees:

1Intrinsic value at expiration: $5
2Premium paid:                  $8
3Net result:                   -$3

The break-even price is $108, not $100.

Moneyness describes the strike relationship. Profitability also depends on the premium and, before expiration, the option's remaining time value and changing market price.

Moneyness is not probability of profit

An out-of-the-money option is not automatically a bad trade, and an in-the-money option is not automatically a high-probability profitable trade.

Probability of profit depends on the premium paid or received, payoff structure, time horizon, volatility assumptions, and the distribution used to estimate future prices.

Likewise, a contract being in the money now does not guarantee it will remain there at expiration.

Moneyness is a state description, not a forecast.

Moneyness affects delta

Option Delta changes materially with moneyness.

For a standard call:

• deep ITM calls tend to have delta closer to +1;
• ATM calls often have delta around +0.50 under common assumptions; and
• deep OTM calls tend to have delta closer to 0.

For puts, the corresponding deltas run from near -1 for deep ITM puts toward 0 for deep OTM puts.

This happens because the option's price behaves more like the underlying as exercise becomes increasingly likely and economically meaningful.

But delta is not identical to moneyness. Two options with the same strike relationship can have different deltas because time, volatility, rates, and dividends differ.

Moneyness affects gamma

Option Gamma is often largest near the money for ordinary vanilla options.

Near the strike, a modest underlying move can shift an option from out of the money to in the money or the reverse. Delta therefore has more room to change rapidly.

Deep ITM and deep OTM options often have lower gamma because their deltas are already closer to their limiting values of 1, -1, or 0.

As expiration approaches, the gamma concentration around the strike can become especially sharp.

Moneyness affects time value

At-the-money options often carry substantial time value because small future price changes can determine whether the contract ends with exercise value.

Deeply in-the-money options can have a larger share of their premium represented by intrinsic value.

Deeply out-of-the-money options can consist almost entirely of time value, even when the total premium is small.

The composition is important:

1Option premium
2= intrinsic value
3+ time value

That familiar decomposition is simple for many standard option examples, but investors should remember that exercise style, interest rates, dividends, and contract details can complicate the interpretation, particularly for European puts.

Spot moneyness versus forward moneyness

Retail option screens often describe moneyness using the current spot price of the underlying.

Professional derivatives analysis may instead compare the strike with a forward price or use a normalized measure such as log-moneyness.

Why can this matter?

The forward price incorporates financing, dividends, carry, and time to expiration. For longer-dated options or assets with meaningful income or carry, the forward price can differ materially from spot.

That means an option that looks exactly at the money using spot can be somewhat different under a forward-moneyness convention.

Before comparing moneyness across models or markets, verify which underlying-price convention is being used.

Moneyness can be expressed continuously, not just with three labels

ITM, ATM, and OTM are useful categories, but moneyness is not really a three-state variable.

A $101 strike and a $150 strike are both out of the money when a stock trades at $100, but they are not remotely equivalent.

Analysts therefore use continuous measures such as:

1Spot / Strike
2Strike / Spot
3ln(Spot / Strike)
4Forward / Strike

The exact convention varies by market and model.

A continuous measure is useful for comparing options across different underlying price levels.

A $10 difference between spot and strike means something very different for a $20 stock than for a $1,000 stock.

Deep in the money does not mean risk free

A deep ITM call can have delta near +1 and substantial intrinsic value, but it still carries risks.

These can include:

• losing value if the underlying falls;
• bid-ask spread and liquidity risk;
• early exercise or assignment considerations;
• financing and dividend effects;
• expiration risk; and
• the opportunity cost of the premium paid.

The position may resemble stock exposure in some ways, but it is still an option contract with finite life and contract-specific mechanics.

Deep out of the money does not mean cheap

A deep OTM option can have a low dollar premium while still being expensive relative to its probability-weighted payoff.

A 20-cent option can lose 100% of its value just as easily as a $20 option can lose 20%.

Low premium is not the same as low valuation.

Implied Volatility can be particularly important. Far-out-of-the-money options may trade at elevated implied volatilities because the market assigns meaningful price to tail events or because demand for protection is strong.

Moneyness and exercise are related but distinct

In-the-money status tells you whether exercise has positive immediate value under the chosen convention.

It does not automatically mean early exercise is optimal.

An American call can be in the money and still be more valuable to sell than to exercise because exercising can sacrifice remaining time value.

Dividend timing, rates, and borrow conditions can alter early-exercise incentives.

European options cannot be exercised early at all.

The moneyness label therefore does not answer the separate question of whether an investor should exercise now.

Moneyness and assignment

For short options, in-the-money status increases assignment relevance, especially near expiration.

But assignment can occur before expiration for American-style options, and the decision belongs to the long holder rather than the short seller.

A short call that is modestly out of the money at one moment can become in the money after a price move. A contract close to the strike near expiration can therefore create uncertain assignment outcomes.

Investors holding short options should understand the contract's exercise style and broker procedures rather than relying only on the current ITM/OTM label.

Moneyness changes continuously

A stock price can move from $99.90 to $100.10 and turn a $100 call from slightly OTM to slightly ITM.

The contract did not suddenly become a completely different economic instrument.

The ITM/ATM/OTM categories are convenient labels on a continuous relationship.

This is another reason investors should use moneyness alongside the Greeks and premium decomposition rather than treating the label as a complete trade analysis.

How investors should read moneyness

Before using a moneyness label, ask:

1. Is the contract a call or put?
2. What is the strike?
3. What underlying price is being used: spot, forward, or another convention?
4. How far from the strike is the underlying in percentage terms?
5. How much time remains to expiration?
6. What intrinsic value exists now?
7. How much time value remains in the premium?
8. What delta and gamma accompany this moneyness level?
9. Is the option American or European style?
10. Is the actual question moneyness, profitability, exercise, assignment, or probability? Those are not the same question.

Grizzly Bulls' Models can be studied with this contract vocabulary without making this page a live option-chain service. The Indicators library provides separate market context but does not determine an option's moneyness.

Sources and further reading

• CFA Institute, 2026, Pricing and Valuation of Options: https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/pricing-valuation-options
• CFA Institute, 2026, Valuation of Contingent Claims: https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2026/valuation-contingent-claims
• Cboe Options Institute, Options Calculator: https://www.cboe.com/oi/tools/options_calculator/

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