When browsing our platform for unusual option activity you will notice three types of designations given to each trade detected, depending on the underlying stock price, option strike price and type of option put or call: in the money, out of the money or at the money.
At the money
An option is at the money (ATM) if the strike price is the same as the current spot price of the underlying security. An at-the-money option has no intrinsic value, only time value.
For example, with an "at the money" call stock option, the current share price and strike price are the same. Exercising the option will not earn the seller a profit, but any move upward in stock price will give the option value.
Since an option will rarely be exactly at the money, except for when it is written (when one may buy or sell an ATM option), one may speak informally of an option being near the money or close to the money.
In the money
An in the money (ITM) option has positive intrinsic value as well as time value. A call option is in the money when the strike price is below the spot price. A put option is in the money when the strike price is above the spot price.
With an "in the money" call stock option, the current share price is greater than the strike price so exercising the option will give the owner of that option a profit. That will be equal to the market price of the share, minus the option strike price, times the number of shares granted by the option (minus any commission).
Out of the money
An out of the money (OTM) option has no intrinsic value. A call option is out of the money when the strike price is above the spot price of the underlying security. A put option is out of the money when the strike price is below the spot price.
With an "out of the money" call stock option, the current share price is less than the strike price so there is no reason to exercise the option. The owner can sell the option, or wait and hope the price changes.