Moneyness (ITM, ATM, OTM)
Also called: moneyness, ITM, ATM, OTM, in the money, at the money, out of the money.
How it is read
Moneyness is a shorthand for how much of the premium is intrinsic value. An in-the-money option carries some. Part of its price only disappears if the level crosses back through the strike. An out-of-the-money option carries none at all. Every rupee of its premium is time value. It expires at nothing unless the level crosses. Moneyness also tracks roughly with how much of a move in the underlying the premium picks up. That is why an out-of-the-money option is both cheap and slow to respond.
What it does not tell you
The label describes this instant and nothing more. An option is in the money until the level crosses its strike. That can happen within a session. It is not a quality rating. None of the three states is better than the others. They are different arrangements with different costs. Listed strikes come at fixed intervals. At the money in practice therefore means the nearest listed strike, not an exact match.
See it in an experiment
Change one input in Market X-Ray and watch what happens.
Market X-Ray: Option Chain — Which option-chain columns answer my question?
Related concepts
Moneyness: What In, At and Out of the Money Actually Mean
Moneyness describes where a strike sits against the current level of the underlying. A call is in the money when the level is above its strike. It is at the money when the two are roughly equal, and out of the money below it. For a put, all of that reverses. The label is not a quality rating. It says how much of the premium is intrinsic value, and how much is a bet on movement, nothing more.
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