Ever wondered what it means when someone says an option is ‘in the money,” ”out of the money,” or “at the money?” These terms are like secret codes used in the world of options trading.
There are many ways to explain this, including intrinsic and extrinsic value comparisons, but I’m going to consider it a number game. Which number is larger or equal to another number? Follow along.
Options contracts have several characteristics:
- What Security: e.g., Stock Or ETF
- Type – CALL or PUT
- Expiration Date.
- Strike Price.
A Call Option Example We’ll Use:
Let’s use this example option – SPY 18 Dec 2026 680.000 Call
This CALL option against the SPY ETF expires on 18 December 2026. The Strike Price is $680.
What Is At The Money Call Option?
When the CALL Option strike price equals(Strike Price = Security Price) the underlying Security’s trading value, the CALL option is considered “AT THE MONEY.”
Using the above Call example option, if SPY were trading at $680, which would equal the example option’s STRIKE price of $680, then this option contract would be at the money.
What Is Out Of The Money Call Option?
When the CALL Option strike price exceeds(Strike Price > Security Price) the underlying Security’s trading value, the CALL option is considered “OUT OF THE MONEY.”
Using the above Call example option, if SPY were trading at < $680, which would be lower than the example option’s STRIKE price of $680, then this option contract would be out of the money.
What Is In The Money Call Option?
When the CALL Option strike price is lower (Strike Price < Security Price) than the underlying Security’s trading value, the CALL option is considered “IN THE MONEY.”
Using the above Call example option, if SPY were trading greater than $680, which would exceed the example option’s STRIKE price of $680, then this option contract would be in the money.
A Put Option Example We’ll Use:
Let’s use this example option – SPY 18 Dec 2026 680.000 Put
This PUT option against the SPY ETF expires on 18 December 2026. The Strike Price is $680.
What Is At The Money Put Option?
When the PUT Option strike price equals(Strike Price = Security Price) the underlying Security’s trading value, the PUT option is considered “AT THE MONEY.”
Using the above PUT example option, if SPY were trading at $680, which would equal the example option’s STRIKE price of $680, then this PUT option contract would be at the money.
What Is Out Of The Money Put Option?
When the Put Option strike price is lower (Strike Price < Security Price) than the underlying Security’s trading value, the PUT option is considered “OUT OF THE MONEY.”
Using the above PUT example option, if SPY were trading greater than $680, exceeding the example option’s STRIKE price of $680, then this PUT option contract would be out of the money.
What Is In The Money Put Option?
When the PUT Option strike price exceeds(Strike Price > Security Price) the underlying Security’s trading value, the PUT option is considered “IN THE MONEY.”
Using the above PUT example option, if SPY were trading at < $680, which would be lower than the example option’s STRIKE price of $680, then this PUT option contract would be in the money.
What Is At The Money Vs Out Of The Money Vs In The Money?
It describes the relationship between the option’s strike price and the current trading price of the underlying security.
I kept it simple by explaining how I look at it without mentioning extrinsic and intrinsic values, and if you have another way of looking at it, please leave a comment.
 Myself with an interesting Bull Sculpture. Notice: No Lambo’s. :/ | Hi I’m Tom, A Blogger And A PIG Farmer. PIG Farmer as in I grow Passive Income Generators(PIG’s). I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks. Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me. My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs. I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments. Fun Fact: In my spare time, I am a Band-Dad! |