what is in the money itm 
the phrase in the money itm refers to an option that possesses intrinsic value an option that s in the money is an option that presents a profit opportunity due to the relationship between the strike price and the prevailing market price of the underlying asset due to the expenses such as commissions involved with options an option that is itm does not necessarily mean a trader will make a profit by exercising it options can also be at the money atm and out of the money otm understanding optionsoptions contracts exist on many financial products including bonds and commodities however options on equities are one of the most popular types of options for investors options give buyers the opportunity but not the obligation to buy or sell the security underlying the option contract at the contract stated strike price by the specified expiration date the strike price is what the investor would pay for the shares it s the execution price or transaction value investors pay a fee called the premium to buy an option contract multiple factors determine the premium s value these factors include the current market price of the underlying security time until the expiration date and the value of the strike price in relationship to the security s market price the premium indicates the value that market participants place on any given option an option that has value will likely have a higher premium than one that has little chance of making money for an investor the two components of options premiums are intrinsic and extrinsic value in the money options have both intrinsic and extrinsic value while out of the money options premiums contain only extrinsic time value the options market can be extremely volatile especially in times that move the market such as large scale macroeconomic events like natural disasters and economic plunges in the money call optionscall options allow for the purchase of the underlying asset at a given price before a stated date the amount of premium depends on whether an option is in the money or not but can be interpreted differently depending on the type of option involved investors who purchase call options believe that the underlying asset s price will increase and close above the strike price by the option s expiration date they are bullish on the price direction of the stock a call option is in the money if the stock s current market price is higher than the option s strike price the amount that an option is in the money is called the intrinsic value it means that the option is worth at least that amount a call option with a strike of 25 would be in the money if the underlying stock were trading at 30 per share the difference between the strike price and the current market price is typically the amount of the premium for the option so investors looking to buy a particular in the money call option will pay the premium or the spread between the strike and the market price an investor holding a call option that s expiring in the money can exercise it and earn the difference between the strike price and market price whether the trade is profitable or not depends on the investor s total transaction expense therefore itm doesn t necessarily mean the trader will make money to make a profit the trader needs the option s in the money value to increase so that it does more than cover the cost of the option s premium 