In the Money and Out of the Money in Call Option and Put Option

What are In the Money and Out of the Money in Option Trading?

Options give the buyer right to buy or sell the security at agreed price (called Strike Price) by the end of the Expiry (date) of the option contract. The concept of In the Money and Out of the Money is important to understand for the option trader as they signify if the options are exercised by the buyer whether he will be in profit or loss.

What is Moneyness?

Moneyness is an indicator related to put and call options as to whether the option would make money if it were exercised immediately. There are many forms of moneyness, including In, Out or At the Money. Moneyness looks at the value of an option if it were to be exercised immediately.

In the Money

The call buyer is in the money when market price is above strike price. The put buyer is in the money when market price is lower than the strike price. If you are in the money, by exercising your option you will make profit.

Note: As an option trader while calculating your profits, you should also consider the premium paid for buying the option.

Out the Money

The call buyer is out of the money while the market price is below the strike price of the option. Similarly, the put buyer is out of the money as long as the market price of the security is above the strike price. 

As long as an option trader you are out of the money and if until expiry of the contract you are unable to exercise your option, you are set to loose your premium amount.

At the Money

Any option is at the money if the market price of the security is equal to the strike price.

The below screenshot of the option chain from NSE website highlights In the Money and Out of the Money Call and Put options at different strike prices.

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