DP
Optionsbeginner

ITM / ATM / OTM / DITM

Moneyness describes the relationship between the underlying price SS and the strike KK. An option is in-the-money (ITM) when immediate exercise produces a positive payoff, at-the-money (ATM) when S≈KS \approx K, and out-of-the-money (OTM) when immediate exercise produces a zero payoff. Deep ITM (DITM) or deep OTM (DOTM) means SS is far from KK. Moneyness drives both the intrinsic value of a premium and an option's sensitivity (delta) to the underlying.

Why it matters

Think of moneyness as a status flag for the option right now. An ITM option already has hard-cash exercise value, an OTM option is purely a bet on future moves, and an ATM option sits on the knife edge between the two. The deeper an option is in the money, the more it behaves like the underlying stock. A DITM call has delta close to +1+1, so it tracks the share almost dollar-for-dollar. A DOTM call has delta near $0$ and behaves more like a lottery ticket.

Formulas

Call moneyness
ITM: S>K,ATM: S≈K,OTM: S<K\text{ITM: } S > K, \quad \text{ATM: } S \approx K, \quad \text{OTM: } S < K
ITM call payoff is the positive amount S−KS - K if exercised immediately.
Put moneyness
ITM: S<K,ATM: S≈K,OTM: S>K\text{ITM: } S < K, \quad \text{ATM: } S \approx K, \quad \text{OTM: } S > K
Put is the mirror image of the call. Direction relative to KK flips.

Worked examples

Scenario

BHP trades at S=S = 50$. A $45 call, $50 call, and $55 call are all available.

Solution

The $45 call has S−K=S - K = 5$ of intrinsic value, so it is ITM. The $50 call has S=KS = K, so it is ATM with $0 intrinsic value. The $55 call has S<KS < K with $0 intrinsic value, so it is OTM. Only the ITM option has positive intrinsic value, but all three carry positive time value while expiry is ahead.

Scenario

A put on CBA with K=K = 100$ when the stock trades at S=S = 115$ versus S=S = 85$.

Solution

At S=S = 115$ the put is OTM with $0 intrinsic value, because the holder would not sell at $100 when the market offers $115. At S=S = 85$ the put is ITM with intrinsic value max⁡(100−85,0)=\max(100 - 85, 0) = 15$. The same strike can be either ITM or OTM depending on where the stock trades.

Common mistakes

  • ✗OTM options are worthless. OTM options still have positive time value before expiry. They are not worthless until they expire, at which point time value collapses to zero.
  • ✗ATM options always have zero value. ATM options usually have the highest time value of any strike. Their fate is the most uncertain, which is exactly what time value compensates the buyer for.
  • ✗Moneyness is the same as profitability. Moneyness ignores the premium paid. A long call can be ITM at expiry and still produce a loss if ST−KS_T - K is less than the premium CC paid up front. Profit requires the move to exceed the premium, not just to reach the strike.

Revision bullets

  • •Call ITM when S>KS > K. Put ITM when S<KS < K
  • •ATM when S≈KS \approx K for both
  • •OTM options have zero intrinsic value
  • •ATM options have the highest time value
  • •Deep ITM call delta approaches +1+1. Deep ITM put delta approaches −1-1

Quick check

A put option with K=K = 60$ when S=S = 52$ is:

Which strike typically has the highest time value, all else equal?

Connected topics

IntrinsicBreak-even

In learning paths

Options Path

Sources

  1. Hull (2022), §10.5
    Hull, John C. Options, Futures, and Other Derivatives. 11th ed. Pearson, 2022. ISBN 978-0-13-693997-9.
    Defines moneyness and explains the connection between ITM, ATM, OTM classifications and intrinsic value.
  2. McDonald (2013), Ch. 9
    McDonald, Robert L. Derivatives Markets. 3rd ed. Pearson, 2013. ISBN 978-0-321-54308-0.
    Detailed undergraduate treatment of moneyness with worked examples for both calls and puts.
  3. Cboe Options Institute Glossary
    Cboe Global Markets. Options Trading Glossary. Cboe Options Institute, accessed 2026.
    Plain-English definitions of in-the-money, at-the-money, out-of-the-money used in US listed options markets.
  4. ASX Options Course, Module 3
    Australian Securities Exchange. Online Options Course, Module 3: Pricing Basics. ASX Investor Education, accessed 2026.
    Local reference connecting moneyness to ASX option premium quotation and exercise.
How to cite this page
Dr. Phil's Quant Lab. (2026). ITM / ATM / OTM / DITM. Derivatives Atlas. https://phucnguyenvan.com/concept/itm-atm-otm
← Back to the atlasSee in the network →