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Difference Between In-The-Money (ITM), At-The-Money (ATM) And Out-The-Money (OTM) Call & Put Options?

18 Aug 2017 Nilesh Jain

An option premium consists of components, namely Intrinsic value and the Time value.

Option premium = Intrinsic value + Time value

ITM ATM OTM
INTRINSIC VALUE YES NO NO
TIME VALUE YES YES YES

Intrinsic value: The Intrinsic value is the amount by which the strike price of an option is In-the-money. The Intrinsic value for call option will be the underlying stock’s price minus its call strike price, whereas for the put option, it is the put strike price minus the underlying stock price. ATM and OTM options don’t have any Intrinsic value.

Time Value: The Time value is also referred to as the Extrinsic value. It is the excess amount over and above an option’s intrinsic value. Time value decreases to zero over time as the option moves closer to expiration. This circumstance is called as Time decay. Options premium depends on time to expiration. Options that would expire after a longer duration of time would be more expensive as compared to those expiring in the current month as the former would have more time value left, increasing the probability of trade going in your favour.

In-The-Money Call Option

An In-the-money call option is described as a call option whose strike price is less than the spot price of the underlying assets.

In the following example of Nifty, the In-the-money call option would be any strike price below Rs.8300 (spot price) of the stock (i.e. Strike price< Spot price).So, NIFTY FEB 8200 CALL would be the example of In-the-money call. An In-the-money option always has some Intrinsic value and Time value.

At-The-Money Call Option

An At-the-money call option is described as a call option whose strike price is approximately equal to spot price of the underlying assets (i.e. Strike price=Spot price). Hence, NIFTY FEB 8300 CALL would be an example of At-the-money call option, where the spot price is Rs 8300. An At-the-money call option doesn’t have any Intrinsic value and it consists of only time value.

Out-The-Money Call Option

An Out-the-money call option is described as a call option whose strike price is higher than the spot price of the underlying assets(i.e. Strike price> Spot price).Thus, an Out-the-money call option’s entire premium consists of Time value/Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8400 CALL would be an example of Out-the-money call option, where the spot price is Rs 8300.

NIFTY (CALL OPTION) Expiry: 23FEB2017 SPOT PRICE: 8300
STRIKE PRICE STATUS OPTION PRICE INTRINSIC VALUE TIME VALUE
8000 ITM 330 300 30
8100 ITM 240 200 40
8200 ITM 160 100 60
8300 ATM 80 0 80
8400 OTM 60 0 60
8500 OTM 40 0 40
8600 OTM 30 0 30

In-the-money put option

An In-the-money put option is described as a put option whose strike price is higher than the current price of the underlying. An In-the-money option always has some Intrinsic value and Time value.

So, the In-the-money put option would be any strike price above Rs8300 (spot price) of the stock. And NIFTY FEB 8400 PUT would be the example of In-the-money put.

At-the-money put option

An At-the-money put option is described as a put option whose strike price is approximately equal to the spot price of the underlying assets. From the following example, NIFTY FEB 8300 PUT would be an example of At-the-money put option, where the spot price is Rs. 8300. An At-the-money put option doesn’t have any Intrinsic value, it consists of only time value.

Out-the-money put option

An Out-the-money put option is described as a put option whose strike price is lower than the spot price of the underlying. Thus, an Out-the-money put option’s entire premium consists of Time value / Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8200 PUT would be an example of Out-the-money put option.

NIFTY ((PUT OPTION) Expiry: 23FEB2017 SPOT PRICE: 8300
STRIKE PRICE STATUS OPTION PRICE INTRINSIC VALUE TIME VALUE
8000 OTM 30 0 30
8100 OTM 40 0 40
8200 OTM 60 0 60
8300 ATM 80 0 80
8400 OTM 160 100 60
8500 OTM 240 200 40
8600 OTM 330 300 30

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Beginner's Corner

Difference Between In-The-Money (ITM), At-The-Money (ATM) And Out-The-Money (OTM) Call & Put Options?

18 Aug 2017 Nilesh Jain

An option premium consists of components, namely Intrinsic value and the Time value.

Option premium = Intrinsic value + Time value

ITM ATM OTM
INTRINSIC VALUE YES NO NO
TIME VALUE YES YES YES

Intrinsic value: The Intrinsic value is the amount by which the strike price of an option is In-the-money. The Intrinsic value for call option will be the underlying stock’s price minus its call strike price, whereas for the put option, it is the put strike price minus the underlying stock price. ATM and OTM options don’t have any Intrinsic value.

Time Value: The Time value is also referred to as the Extrinsic value. It is the excess amount over and above an option’s intrinsic value. Time value decreases to zero over time as the option moves closer to expiration. This circumstance is called as Time decay. Options premium depends on time to expiration. Options that would expire after a longer duration of time would be more expensive as compared to those expiring in the current month as the former would have more time value left, increasing the probability of trade going in your favour.

In-The-Money Call Option

An In-the-money call option is described as a call option whose strike price is less than the spot price of the underlying assets.

In the following example of Nifty, the In-the-money call option would be any strike price below Rs.8300 (spot price) of the stock (i.e. Strike price< Spot price).So, NIFTY FEB 8200 CALL would be the example of In-the-money call. An In-the-money option always has some Intrinsic value and Time value.

At-The-Money Call Option

An At-the-money call option is described as a call option whose strike price is approximately equal to spot price of the underlying assets (i.e. Strike price=Spot price). Hence, NIFTY FEB 8300 CALL would be an example of At-the-money call option, where the spot price is Rs 8300. An At-the-money call option doesn’t have any Intrinsic value and it consists of only time value.

Out-The-Money Call Option

An Out-the-money call option is described as a call option whose strike price is higher than the spot price of the underlying assets(i.e. Strike price> Spot price).Thus, an Out-the-money call option’s entire premium consists of Time value/Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8400 CALL would be an example of Out-the-money call option, where the spot price is Rs 8300.

NIFTY (CALL OPTION) Expiry: 23FEB2017 SPOT PRICE: 8300
STRIKE PRICE STATUS OPTION PRICE INTRINSIC VALUE TIME VALUE
8000 ITM 330 300 30
8100 ITM 240 200 40
8200 ITM 160 100 60
8300 ATM 80 0 80
8400 OTM 60 0 60
8500 OTM 40 0 40
8600 OTM 30 0 30

In-the-money put option

An In-the-money put option is described as a put option whose strike price is higher than the current price of the underlying. An In-the-money option always has some Intrinsic value and Time value.

So, the In-the-money put option would be any strike price above Rs8300 (spot price) of the stock. And NIFTY FEB 8400 PUT would be the example of In-the-money put.

At-the-money put option

An At-the-money put option is described as a put option whose strike price is approximately equal to the spot price of the underlying assets. From the following example, NIFTY FEB 8300 PUT would be an example of At-the-money put option, where the spot price is Rs. 8300. An At-the-money put option doesn’t have any Intrinsic value, it consists of only time value.

Out-the-money put option

An Out-the-money put option is described as a put option whose strike price is lower than the spot price of the underlying. Thus, an Out-the-money put option’s entire premium consists of Time value / Extrinsic value and it doesn’t have any Intrinsic value. So, NIFTY FEB 8200 PUT would be an example of Out-the-money put option.

NIFTY ((PUT OPTION) Expiry: 23FEB2017 SPOT PRICE: 8300
STRIKE PRICE STATUS OPTION PRICE INTRINSIC VALUE TIME VALUE
8000 OTM 30 0 30
8100 OTM 40 0 40
8200 OTM 60 0 60
8300 ATM 80 0 80
8400 OTM 160 100 60
8500 OTM 240 200 40
8600 OTM 330 300 30