In the Money (ITM) A Brief Overview of Options. So, if shares of XYZ are trading at $40, the February 50 put will be ITM. Michael Boyle is an experienced financial professional with 9+ years working with Financial Planning, Derivatives, Equities, Fixed Income, Project Management, and Analytics. Options are available to trade for many financial products such as bonds and commodities but, equities are one of the most popular for investors. A put option buyer is hoping the stock's price will fall far enough below the option's strike to at least cover the cost of the premium for buying the put. A put option is said to be in the money when the strike price of the put is above the current price of the underlying stock. The expense of buying the option and any commission fees must also be considered. Upon exercise, a put option is valued at K-S if it is "in-the-money", otherwise its value is zero. Conversely, a put option—which gives the buyer the right to sell an asset at a set price on or before a particular day—is ITM if the price of the underlying security is lower than the strike price. Investors who purchase call options are bullish that the asset's price will increase and... In-the-Money Call Options. In-the-money options may be contrasted with out of the money (OTM) options. That means the put has intrinsic value. Before you can understand what a deep in the money call is, you need a working knowledge of a few other options contract concepts.. In the previous article we have explained why time value of at the money call options is higher than time value of deep in the money call options (other factors being equal). A put option that is "in the money" is one where the price of the underlying security is below the strike price of the option. Thus, an Out-the-money put option’s entire premium consists of Time value / Extrinsic value and it doesn’t have any Intrinsic value. What are In-the-money (ITM) and Out-of-the-money (OTM) call options? Example of Deep in the Money Calls and Puts: Suppose YHOO is at $40 and you think YHOO's stock price is going to go up to $50 in the next few weeks. Investors buy these options contracts that give them the ability to sell the underlying security at the strike price when they expect the value of the security to decrease. The prices of the option have parity with the market price of the option. Naked Put selling is one of the best options trading strategies that I think is the safest to make money over the long-term. The intrinsic value of an option that's ITM is the greater of the strike price or the price of the underlying asset minus the other price. The higher above $5, the more OTM the option is. Using the same SPY from scenario #1, today, the SPY trades for $316.58. Options give the buyer the opportunity—but not the obligation—of buying or selling the underlying security at the contract-stated strike price, by the specified expiration date. J.P. Morgan stock is trading at 44.50. The reason is that the closer to at the money an option is, the more it limits your maximum risk from holding it, as there is less intrinsic value you can lose. While call options allow the purchase of an asset, a put option accomplishes the opposite action. ITM doesn't mean the trader is making money. This Trade: SELL 1 x 17 Jan 20 $40 PUT at $7.80; BUY 1 x 17 Jan 20 $32 CALL at $0.88 . Maybe the worst case risk is the stock tanks or the market tanks and I bought at 9.25 and it goes to 5 bucks or something. Because ATM put and call options can not be exercised for a profit, their intrinsic value is also zero. Deep in the money, the February 50 put will be assigned put option in the money buy the stock find. 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