In options trading, "In the Money" (ITM) means the option is valuable. If an option is ITM, it’s a good deal for the holder because they can buy or sell the asset at a price that benefits them, based on the current market price.
ITM Call or Put Option:
A call or put option is "In the Money" (ITM) if its strike price is below or above the asset's current price, respectively.
Example of ITM Call:
A trader holds a Reliance Industries call with a strike price of ₹2000, which gives him the right to buy shares of Reliance at ₹2000 on the expiry date, regardless of where the price ends on expiration. If Reliance Industries rises to, say, ₹2500 at expiry, the call option is "In the Money" (ITM) by ₹500 since he will be happy to buy something at ₹2000 what is now at ₹2500.
Example of ITM Put:
A trader holds a Reliance Industries put with a strike price of ₹2000, which gives him the right to sell shares of Reliance at ₹2000 on the expiry date, regardless of where the price ends on the expiry date. If Reliance Industries ends at, say, ₹1600 on the expiration date, the put option is "In the Money" (ITM) by ₹400 since he will be happy to sell something at ₹2000 what is now worth only ₹1600.
In summary, understanding the concept of ITM helps traders assess the potential of their options and make informed decisions based on current market conditions. Whether you hold a call or put option, being In the Money is a favourable position, as it means the market price is in your favour and you can act on the opportunity before the option expires.
Disclaimer: This information is for educational purposes only. Trading in Futures and Options involves substantial risk and is unsuitable for all investors. Past performance is not indicative of future results. Consult a financial advisor before engaging in such trading activities.
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