Call Put Options: Difference Between In the Money Out the Money and At the Money
The Call Option and Put Option are two basic phrases related to options trading. If you are an experienced trader, you might already have an idea about these concepts. However, for beginners, call put options could seem like just another stock trading jargon.
Published on 29 January 2023
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There are four different variants of call put options in trading. These are, buying a call option, buying a put option, selling a call option, and selling a put option. With these variants, traders can create different combinations and use various strategies, like Options strategies, to incur gains in the market.
While dealing with call options and put options, you may have also encountered the phrases, ‘in the money’, ‘at the money’, and ‘out the money’. So, what are these about? Let’s get into the details below.
Call Options
With a call option; the option buyers get the right to buy stocks/shares at the strike price if that’s profitable for them to do so. Now, let’s find out what is ITM, OTM, ATM for a call option.
In-the-money call option
The in-the-money call option is a type of call option in which the strike price is lesser than the spot price of an underlying asset. For example, for January 2022, if an underlying asset in NIFTY has a strike price of less than ₹8300, which is the spot price, it would be NIFTY JAN 8200 CALL, which is an in-the-money call option. Again, the in-the-money call option comes with a time value and an intrinsic value.
Out-the-money call option
In the out-the-money call option, the strike price is more than the spot price of the underlying asset. So, if we again take an example of NIFTY like above, if the strike price is more than ₹8300, it would be called NIFTY JAN 8400 CALL, which would be an out-the-money call option, with a spot price of ₹8300. This option has a time value but has no intrinsic value. Also Read: How to invest in Nifty Index Fund?
At-the-money call option
Now, in an at-the-money call option, as you may have already guessed, the strike price of an underlying asset is almost equal to the spot price of the same. Hence, as per the example mentioned above from NIFTY, NIFTY JAN 8300 CALL is considered an at-the-money call option with a strike price and a spot price of ₹8300. There is no intrinsic value in this case and only has a time value.
Put Options
With put options, traders can purchase a stock, assuming that the price will decrease. Simply put, put options provide a contract to the option buyer with the right (not the obligation) to sell a certain amount of an underlying asset at a predefined price within a certain time frame. So, what’s ITM, OTM, ATM in put options? Let’s find out.
In-the-money put option
In an in-the-money put option, the strike price of an underlying asset is more than the current price. Also, this option always comes with a Time value and an intrinsic value. For instance, in an in-the-money put option, if the strike price of an asset is more than ₹8300, which is the spot price, it will be termed as NIFTY JAN 8400 PUT.
Out-the-money put option
In an out-the-money put option, the strike price of the underlying asset is lower than the spot price. Thus, this put option has only the Time value and no intrinsic value. NIFTY JAN 8200 could be taken as an example for an out-the-money put option.
At-the-money put option
In an at-the-money put option, similar to that of call options; the strike price is nearly equal to the spot price of the underlying asset. From the above example, NIFT JAN 8300 PUT could be an example to describe this. Again, in an at-the-money put option but only time value.
Difference Between ITM, OTM, ATM in Call Put Options
To learn the differences better, here is a simple table to help you understand the concepts of ITM, OTM, and ATM in call put options.
Differences
Call Option
Put Option
In-the-money (ITM)
Strike price < spot price of an underlying asset
Strike price > spot price of an underlying asset
Out-the-money (OTM)
Strike price > spot price of an underlying asset
Strike price < spot price of an underlying asset
At-the-money (ATM)
Strike price = spot price of an underlying asset
Strike price = spot price of an underlying asset
Conclusion
So, now that you have got an idea regarding the ITM, OTM, ATM in put options, and a call option, it would be better to trade in the same. All the best! Also Read: How to trade better in Options?
The securities market has several options for investors to choose from. Whilst shares and debentures are the most commonly known securities; the relatively lesser-known derivatives are also dynamic securities. One of the major types of derivative contracts is an options contract.
An index option is a financial derivative whose value is determined from the primary stock market index. Simply put, an index option is an underlying asset that gives a holder the right to sell or buy the underlying stock options at a predetermined price. Index options consist of call option and put option that confers the holder the right (not the obligation) to buy or sell assets.
Any investment requires a great amount of caution. When it comes to trading in options, an investor should be more careful. This is because options trading is riskier than any other equity investment in the share market. Due to this, most seasoned investors always consider different options trading strategies to minimise their losses and curtail the risks involved.
An ITM call option has lower risk than an OTM call option. However, it is also more expensive than the OTM call option. So, if you only wish to keep a small amount of your capital at stake on your call trading idea, the OTM may be the best.
At the money (ATM) is a trading situation where the strike price of an option is similar to the spot price of the underlying security.
A call option is when the trader receives a contract with the right (but not an obligation) to buy an underlying asset at a quantified price within a certain time frame.
A put option permits a trader to sell a certain amount of an underlying asset at a predetermined price on or before the expiration date of the option.
An out-the-money option has no intrinsic value but only time value in its premiums. The OTM options are less expensive than in-the-money options.
The strike price is the price of an underlying asset at which a contract is given to the trader to be bought or sold.
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The securities market has several options for investors to choose from. Whilst shares and debentures are the most commonly known securities; the relatively lesser-known derivatives are also dynamic securities. One of the major types of derivative contracts is an options contract.
An index option is a financial derivative whose value is determined from the primary stock market index. Simply put, an index option is an underlying asset that gives a holder the right to sell or buy the underlying stock options at a predetermined price. Index options consist of call option and put option that confers the holder the right (not the obligation) to buy or sell assets.
Any investment requires a great amount of caution. When it comes to trading in options, an investor should be more careful. This is because options trading is riskier than any other equity investment in the share market. Due to this, most seasoned investors always consider different options trading strategies to minimise their losses and curtail the risks involved.
An ITM call option has lower risk than an OTM call option. However, it is also more expensive than the OTM call option. So, if you only wish to keep a small amount of your capital at stake on your call trading idea, the OTM may be the best.
At the money (ATM) is a trading situation where the strike price of an option is similar to the spot price of the underlying security.
A call option is when the trader receives a contract with the right (but not an obligation) to buy an underlying asset at a quantified price within a certain time frame.
A put option permits a trader to sell a certain amount of an underlying asset at a predetermined price on or before the expiration date of the option.
An out-the-money option has no intrinsic value but only time value in its premiums. The OTM options are less expensive than in-the-money options.
The strike price is the price of an underlying asset at which a contract is given to the trader to be bought or sold.
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