The strike price is the fixed price at which an option contract lets you buy (call) or sell (put) the underlying. In-the-money (ITM), at-the-money (ATM) and out-of-the-money (OTM) (together called "moneyness") describe where a strike sits relative to the underlying's current market price.
If calls and puts are new to you, read What are call and put options? first. This article builds directly on it.
What exactly is the strike price?
For every stock or index in the derivatives segment, the exchange lists options at many strike prices, a ladder of fixed prices above and below the current market price. When you buy a Sundar Textiles ₹500 call, the ₹500 is the strike: the price at which your right to buy applies, no matter where the stock trades later.
You don't get to invent a strike. You pick one from the ladder the exchange has listed, and each strike has its own premium.
What do ITM, ATM and OTM mean?
Moneyness answers one question: if this option were exercised right now, would it have any built-in value?
- In-the-money (ITM): yes. Exercising now would be worthwhile. The premium includes real, built-in (intrinsic) value.
- At-the-money (ATM): the strike is at, or closest to, the current market price. No meaningful built-in value yet.
- Out-of-the-money (OTM): exercising now would be pointless. The entire premium is hope. The market must move for this option to be worth anything at expiry.
The same strike can be ITM for a call and OTM for a put, because calls and puts point in opposite directions.
How does moneyness look around one spot price?
Say Sundar Textiles trades at ₹500 right now. Here is the moneyness of three strikes, for a call and a put:
| Strike | Call (right to buy) | Put (right to sell) |
|---|---|---|
| ₹480 | ITM. You could buy at ₹480 what sells at ₹500 | OTM. Why sell at ₹480 when the market pays ₹500? |
| ₹500 | ATM | ATM |
| ₹520 | OTM, no point buying at ₹520 yet | ITM. You could sell at ₹520 what trades at ₹500 |
A quick memory hook: for calls, strikes below the market price are ITM; for puts, strikes above the market price are ITM. ATM is the middle of the ladder in both cases.
Why does moneyness matter for the premium?
Premiums fall as you move from deep ITM to far OTM. An ITM option costs more because part of its price is real value already; an OTM option is cheap because it may expire worthless. That cheapness is exactly what attracts beginners. A far OTM option can double quickly on a sharp move, but far more often it simply decays to zero.
You'll see the whole strike ladder laid out when you open an option chain. How do I read an option chain? walks through it column by column.
Things to keep in mind
- Moneyness is a snapshot, not a verdict. An OTM option can become ITM (and back) as the underlying moves.
- Cheap OTM options are not "low risk". The most likely outcome for a far OTM option is losing the entire premium.
- Deep ITM options behave more like the stock itself; far OTM options behave like lottery tickets with an expiry date.
- Moneyness at expiry decides settlement. ITM stock options can trigger delivery obligations, so know your position before expiry day.
Read next
What makes up an option's premium? — Why an option costs what it costs, and why it decays.