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  • Digg it UP - Difference between In-the-money (ITM), Out-of-the-money (OTM), or At-the-money (ATM).

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    entially be choosing to buy the stock for $70.00 when the
    stock is trading at $65.00 in the open market. This action would
    result in a $5.00 loss. Obviously, you wouldn’t do that.

    An out-of-the-money put has an exercise price that is lower than
    the present price of the underlying. Thus, an out-of-the-money
    put option’s entire premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money put because
    the option’s strike price is lower than the current stock price.
    For example, if you chose to exercise the MSFT January 60 put
    while the stock was trading at$65.00, you would be choosing to
    sell the stock at $60.00 when the stock is t
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    Difference between In-the-money (ITM), out-of-the-money (OTM),
    or at-the-money (ATM).

    An option can be described by its strike price’s proximity to
    the stock’s price. An option can either be in-the-money (ITM),
    out-of-the-money (OTM), or at-the-money (ATM).

    An at-the-money option is described as an option whose exercise
    or strike price is approximately equal to the present price of
    the underlying stock.

    For instance, if Microsoft (MSFT) was trading at $65.00, then
    the January $65.00 call would an example of an at-the-money call
    option. Similarly, the January $65.00 put would be an example of
    an at-the-money put option.

    Please view charts below for at-the-money option examples.

    An in-the-money call option is described as a call whose strike
    (exercise) price is lower than the present price of the
    underlying. An in-the-money put is a put whose strike (exercise)
    price is higher than the present price of the underlying, i.e.
    an option which could be exercised immediately for a cash credit
    should the option buyer wish to exercise the option.

    In our Microsoft example above, an in-the-money call option
    would be any listed call option with a strike price below $65.00
    (the price of the stock). So, the MSFT January 60 call option
    would be an example of an in-the-money call.

    The reason is that at any time prior to the expiration date, you
    could exercise the option and profit from the difference in
    value: in this case $5.00 ($65.00 stock price - $60.00 call
    option strike price = $5.00 of intrinsic value). In other words,
    the option is $5.00 “in-the-money.”

    Using our Microsoft example, an in-the-money put option would be
    any listed put option with a strike price above $65.00 (the
    price of the stock). The MSFT January 70 put option would be an
    example of an in-the-money put.

    It is in-the-money because at any time prior to the expiration
    date, you could exercise the option and profit from the
    difference in value: in this case $5.00 ($70.00 put option
    strike price - $65.00 stock price = $5.00 of intrinsic value. In
    other words, the option is $5.00 “in-the-money.”

    Please view charts below for more in-the-money option examples.

    An out-of-the-money call is described as a call whose exercise
    price (strike price) is higher than the present price of the
    underlying. Thus, an out-of-the-money call option’s entire
    premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money call because
    the option’s strike price is higher than the current stock
    price. For example, if you chose to exercise the MSFT January 70
    call while the stock was trading at $65.00, you would
    essentially be choosing to buy the stock for $70.00 when the
    stock is trading at $65.00 in the open market. This action would
    result in a $5.00 loss. Obviously, you wouldn’t do that.

    An out-of-the-money put has an exercise price that is lower than
    the present price of the underlying. Thus, an out-of-the-money
    put option’s entire premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money put because
    the option’s strike price is lower than the current stock price.
    For example, if you chose to exercise the MSFT January 60 put
    while the stock was trading at$65.00, you would be choosing to
    sell the stock at $60.00 when the stock is tr
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    below for at-the-money option examples.

    An in-the-money call option is described as a call whose strike
    (exercise) price is lower than the present price of the
    underlying. An in-the-money put is a put whose strike (exercise)
    price is higher than the present price of the underlying, i.e.
    an option which could be exercised immediately for a cash credit
    should the option buyer wish to exercise the option.

    In our Microsoft example above, an in-the-money call option
    would be any listed call option with a strike price below $65.00
    (the price of the stock). So, the MSFT January 60 call option
    would be an example of an in-the-money call.

    The reason is that at any time prior to the expiration date, you
    could exercise the option and profit from the difference in
    value: in this case $5.00 ($65.00 stock price - $60.00 call
    option strike price = $5.00 of intrinsic value). In other words,
    the option is $5.00 “in-the-money.”

    Using our Microsoft example, an in-the-money put option would be
    any listed put option with a strike price above $65.00 (the
    price of the stock). The MSFT January 70 put option would be an
    example of an in-the-money put.

    It is in-the-money because at any time prior to the expiration
    date, you could exercise the option and profit from the
    difference in value: in this case $5.00 ($70.00 put option
    strike price - $65.00 stock price = $5.00 of intrinsic value. In
    other words, the option is $5.00 “in-the-money.”

    Please view charts below for more in-the-money option examples.

    An out-of-the-money call is described as a call whose exercise
    price (strike price) is higher than the present price of the
    underlying. Thus, an out-of-the-money call option’s entire
    premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money call because
    the option’s strike price is higher than the current stock
    price. For example, if you chose to exercise the MSFT January 70
    call while the stock was trading at $65.00, you would
    essentially be choosing to buy the stock for $70.00 when the
    stock is trading at $65.00 in the open market. This action would
    result in a $5.00 loss. Obviously, you wouldn’t do that.

    An out-of-the-money put has an exercise price that is lower than
    the present price of the underlying. Thus, an out-of-the-money
    put option’s entire premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money put because
    the option’s strike price is lower than the current stock price.
    For example, if you chose to exercise the MSFT January 60 put
    while the stock was trading at$65.00, you would be choosing to
    sell the stock at $60.00 when the stock is t
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    at any time prior to the expiration date, you
    could exercise the option and profit from the difference in
    value: in this case $5.00 ($65.00 stock price - $60.00 call
    option strike price = $5.00 of intrinsic value). In other words,
    the option is $5.00 “in-the-money.”

    Using our Microsoft example, an in-the-money put option would be
    any listed put option with a strike price above $65.00 (the
    price of the stock). The MSFT January 70 put option would be an
    example of an in-the-money put.

    It is in-the-money because at any time prior to the expiration
    date, you could exercise the option and profit from the
    difference in value: in this case $5.00 ($70.00 put option
    strike price - $65.00 stock price = $5.00 of intrinsic value. In
    other words, the option is $5.00 “in-the-money.”

    Please view charts below for more in-the-money option examples.

    An out-of-the-money call is described as a call whose exercise
    price (strike price) is higher than the present price of the
    underlying. Thus, an out-of-the-money call option’s entire
    premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money call because
    the option’s strike price is higher than the current stock
    price. For example, if you chose to exercise the MSFT January 70
    call while the stock was trading at $65.00, you would
    essentially be choosing to buy the stock for $70.00 when the
    stock is trading at $65.00 in the open market. This action would
    result in a $5.00 loss. Obviously, you wouldn’t do that.

    An out-of-the-money put has an exercise price that is lower than
    the present price of the underlying. Thus, an out-of-the-money
    put option’s entire premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money put because
    the option’s strike price is lower than the current stock price.
    For example, if you chose to exercise the MSFT January 60 put
    while the stock was trading at$65.00, you would be choosing to
    sell the stock at $60.00 when the stock is t
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    ion
    strike price - $65.00 stock price = $5.00 of intrinsic value. In
    other words, the option is $5.00 “in-the-money.”

    Please view charts below for more in-the-money option examples.

    An out-of-the-money call is described as a call whose exercise
    price (strike price) is higher than the present price of the
    underlying. Thus, an out-of-the-money call option’s entire
    premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money call because
    the option’s strike price is higher than the current stock
    price. For example, if you chose to exercise the MSFT January 70
    call while the stock was trading at $65.00, you would
    essentially be choosing to buy the stock for $70.00 when the
    stock is trading at $65.00 in the open market. This action would
    result in a $5.00 loss. Obviously, you wouldn’t do that.

    An out-of-the-money put has an exercise price that is lower than
    the present price of the underlying. Thus, an out-of-the-money
    put option’s entire premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money put because
    the option’s strike price is lower than the current stock price.
    For example, if you chose to exercise the MSFT January 60 put
    while the stock was trading at$65.00, you would be choosing to
    sell the stock at $60.00 when the stock is t
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    entially be choosing to buy the stock for $70.00 when the
    stock is trading at $65.00 in the open market. This action would
    result in a $5.00 loss. Obviously, you wouldn’t do that.

    An out-of-the-money put has an exercise price that is lower than
    the present price of the underlying. Thus, an out-of-the-money
    put option’s entire premium consists of only extrinsic value.

    There is no intrinsic value in an out-of-the-money put because
    the option’s strike price is lower than the current stock price.
    For example, if you chose to exercise the MSFT January 60 put
    while the stock was trading at$65.00, you would be choosing to
    sell the stock at $60.00 when the stock is trading at $65.00 in
    the open market. This action would result in a $5.00 loss.
    Obviously, you would not want to do that.

    Please view charts below for out-of-the-money option examples.

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