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Key Takeaways
- A call is in the money when the stock trades above the strike price, and a put is in the money when the stock trades below it.
- In the money options are the only contracts with intrinsic value, equal to the amount by which they are in the money.
- In the money does not mean profitable, because the result depends on the premium paid, not the classification.
- Exercise-by-exception generally routes equity options that finish at least $0.01 in the money toward exercise, subject to broker cutoffs, account rules, and contrary instructions.
- Sellers of in the money options carry assignment risk that grows as expiration approaches and extrinsic value drains away.
What is an in-the-money (ITM) option?
An in-the-money (ITM) option is an option with positive intrinsic value. A call is ITM when the underlying price is above the strike, and a put is ITM when the underlying price is below the strike. The positive difference between the two prices is the option’s intrinsic value.
A 95 call with stock at $100 has $5 intrinsic value per unit. A 105 put on the same stock also has $5 intrinsic value. These calculations locate the contracts on the option chain. Entry premium and exit value determine the trade’s profit.
How does ITM premium work?
For a standard US equity option, quoted premium multiplied by 100 gives the cost per contract. The premium divides into intrinsic value and extrinsic value.
With XYZ at $187, a 180 call quoted at $9.50 costs $950. Its intrinsic value is $7 per share, and its extrinsic value is $2.50 per share.
Deeper ITM calls carry more positive delta; deeper ITM puts carry more negative delta. Compare the actual Greeks, spread, and premium across the strikes to choose the exposure you want.
In-the-money option example
XYZ trades at $187 and a trader buys one 180 call for $9.50 per share, a $950 outlay for the standard contract. The contract is in the money by $7, so the premium splits into $7.00 of intrinsic value and $2.50 of extrinsic value.
- Entry: XYZ at $187, one 180 call at $9.50 per share for $950 total
- Moneyness at entry: in the money by $7, made of $7.00 intrinsic and $2.50 extrinsic value
- Expiration at $192: ($192 − $180 − $9.50) × 100 = $250 profit, 26% on premium while the stock moved 2.7%
- Rerun at $188: ($188 − $180 − $9.50) × 100 = −$150, exercised but below the $189.50 breakeven
The option was in the money in both outcomes, yet the second still lost because the stock never cleared the $189.50 break-even price. In the money describes position on the chain, not profit.
At an expiration price of $192, its $1,200 payoff exceeds the $950 entry cost by $250. At $188, its $800 payoff leaves a $150 loss. Both outcomes are ITM.
Before expiration, a sale at $11 receives $1,100 and realizes $150 gross profit. Use the execution price for a closing trade and the final payoff for an expiration calculation.
What happens when an ITM option expires?
Exercise turns a standard equity call into a purchase of 100 shares per contract at the strike; a put exercise sells those shares. Cash-settled products use their specified settlement value and multiplier.
OCC’s exercise-by-exception procedure uses the relevant closing reference and a $0.01 ITM threshold for expiring equity options. Broker instructions and account procedures govern customer exercise processing. Confirm the exercise or closing instruction before the broker’s deadline, then manage the resulting share or cash position.
American-style contracts also permit exercise before expiration. Compare the option’s market value with its exercise value when selecting the exit. For calls around an ex-dividend date, include the dividend, remaining extrinsic value, and financing cost in that comparison.
How do traders use ITM options?
ITM calls provide substantial positive delta for stock-replacement structures. ITM puts provide substantial negative delta for bearish exposure and portfolio protection. Compare the position’s premium, Greeks, and expiration payoff with the stock position or alternative spread.
Read an ITM execution in options flow by its size, premium, quote location, and related legs, then compare the position at the target price and planned exit date in the options profit calculator.
Limitations of in-the-money options
- In the money is not the same as profitable. The 180 call finishes ITM at $188 and still loses $150 because it ends below its $189.50 breakeven.
- ITM status flips each time the stock crosses the strike before expiration. The settlement reference and exercise instructions decide the final result, so plan the exercise or close before the cutoff.
- Size the position by the premium at risk. Intrinsic value raises the cost: the ITM call costs $950, so a move back below the strike puts more dollars at risk than a cheaper out-of-the-money contract.
- An expiring equity option $0.01 or more ITM goes to exercise under exercise-by-exception unless the holder or broker instructs otherwise, and each contract becomes a 100-share position. Close or roll a short ITM option before its extrinsic value drains away, because assignment risk grows as it does.
Bottom line
In the money means an option has intrinsic value: the underlying is above a call’s strike or below a put’s strike. Use moneyness to locate a contract on the chain, then judge the trade by its premium, breakeven, and Greeks, and plan the exercise or closing instruction before expiration.
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Sources and Further Reading
How entries are sourced, calculated and updated: editorial methodology.