In the Money (ITM) Option Status Explained
By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.
Quick answer
An option is in the money when exercising it would produce a positive payoff. For a call, that means spot price sits above the strike. For a put, spot sits below the strike. The difference between spot and strike is the option’s intrinsic value, with any remaining premium representing time value.
What is in the money?
In the money, abbreviated ITM, is one of three moneyness states an option can hold, alongside at the money (ATM) and out of the money (OTM). A call option is ITM when the underlying spot price trades above the strike price. A put option is ITM when spot trades below the strike. The gap between spot and strike is called intrinsic value, the portion of premium a holder would recover by exercising immediately. The remaining premium is extrinsic, or time value, which reflects volatility expectations and time to expiry. ITM options carry the highest deltas, typically above 0.5 in absolute terms.
How traders use in the money
Retail traders use ITM options when they want exposure that behaves closer to the underlying instrument. A deep ITM call on EUR/USD, for example, with a delta near 0.9, moves almost one-for-one with spot, similar to holding the spot position but with capped downside at the premium paid. Institutional desks select ITM strikes for directional conviction trades where time decay is less punishing than on OTM contracts, since most of the premium is intrinsic rather than extrinsic. Hedgers also favour ITM puts for protective overlays because the higher delta gives more immediate downside coverage. The trade-off is capital outlay: ITM premiums are larger, so position sizing must reflect the absolute dollar risk, not just the contract count.
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Worked example of in the money
Consider a EUR/USD call with a strike of 1.0800 and spot trading at 1.0900. The intrinsic value is 100 pips, because exercising the call lets the holder buy at 1.0800 and immediately mark to market at 1.0900. If the total premium is 130 pips, the remaining 30 pips is time value. As expiry approaches, the time value decays towards zero, leaving only the intrinsic component. If spot falls back to 1.0800 at expiry, the option finishes at the money with zero intrinsic value, and the entire premium is lost.
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Frequently asked
What is the difference between in the money and at the money?
An option is in the money when spot has moved past the strike in the holder’s favour, producing positive intrinsic value. At the money means spot and strike are equal or very close, so intrinsic value is zero and the entire premium is time value. ITM contracts cost more because the holder has already captured part of the directional move, whereas ATM contracts depend entirely on future volatility and time to expiry to generate any payoff.
Are in the money options always profitable?
No. An option being ITM only means it has intrinsic value, not that the trade is profitable. The holder paid a premium to enter the position, and that premium must be recovered before any net gain. A call bought for 150 pips of premium with 100 pips of current intrinsic value is still 50 pips underwater. Profitability depends on whether intrinsic value at exit or expiry exceeds the original premium paid.
Why do ITM options have higher delta?
Delta measures how much an option price moves for a one-unit change in the underlying. Deep ITM calls behave almost like holding the underlying outright, so their delta approaches 1.0. Deep ITM puts approach minus 1.0. This happens because the probability of finishing ITM is very high, so the option’s price tracks spot closely. ATM options sit near 0.5 delta, and OTM options have low deltas that grow only if spot moves towards the strike.
Should retail traders prefer ITM or OTM options?
It depends on the objective. ITM options cost more but offer higher delta and lower percentage time decay, which suits directional trades with strong conviction or short holding periods. OTM options are cheaper and give leveraged exposure to large moves, but most expire worthless. The desk treats the choice as a function of expected move size, holding period, and tolerance for total premium loss. Neither structure is universally better, only better suited to specific scenarios.
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