What does "in the money" mean in options?
In one line: An option is in the money when using it right now would be worth something: a call whose strike is below the stock price, or a put whose strike is above it.
A simple example with numbers
The stock trades at $108.
- A $100 Call option lets you buy at $100. That's $8 below today's price. It's in the money by $8.
- A $110 Put option lets you sell at $110. That's $2 above today's price. It's in the money by $2.
Now flip them:
- A $115 call is out of the money: buying at $115 when the stock is $108 makes no sense.
- An option with a strike right at $108 is at the money.
Quick reference
| Call | Put | |
|---|---|---|
| In the money | Strike below stock price | Strike above stock price |
| At the money | Strike ≈ stock price | Strike ≈ stock price |
| Out of the money | Strike above stock price | Strike below stock price |
Intrinsic value vs time value
Say the $100 call costs $10 with the stock at $108.
- Intrinsic value: $8 (the in-the-money part)
- Time value: $10 − $8 = $2 (what buyers pay for the chance of more)
Time value shrinks to zero by the Expiration date. An out-of-the-money option is all time value.
Why it matters
In-the-money options cost more but move more like the stock, with a higher Delta. Out-of-the-money options cost less but need a bigger move to be worth anything at expiry. Our options trading basics guide walks through choosing a Strike price.
A common mistake
Thinking "in the money" means you made money. If you paid $10 for that $100 call, and at expiry the stock is still $108, the option is worth $8. It's in the money, yet you lost $2 a share, or $200 on one 100-share contract. A math example, not a promise. Compare what the option is worth to what you paid.
Questions
What happens to in-the-money options at expiration?
In the US, equity options that finish in the money by $0.01 or more are usually exercised automatically, unless you tell your broker otherwise. Many brokers close them before that if you lack the funds.
Is it better to buy in-the-money or out-of-the-money options?
Neither is better in general. In-the-money options cost more and act more like the stock; out-of-the-money options cost less but more often expire worthless.
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