Learn ATM, ITM and OTM
In options trading, ATM (At the Money) means the option’s strike price is equal to the underlying asset’s current market price. OTM (Out of the Money) occurs when a call option’s strike price is higher, or a put option’s strike price is lower than the current market price, resulting in no intrinsic value. ITM (In the Money) happens when a call option’s strike price is lower, or a put option’s strike price is higher than the current market price, meaning the option has intrinsic value.
- 1 What are ATM, ITM and OTM ? ATM, ITM and OTM kya hota hai
- 2 What is ATM ? (At the money) ATM kya hota hai
- 3 What is ITM? (In the money) ITM kya hota hai
- 4 What is OTM? (Out of the money) OTM kya hota hai
- 5 Examples of ATM, ITM and OTM
- 6 Difference between ATM, OTM and ITM
- 7 Key Takeaways
- 8 Conclusions: Learn ATM, ITM and OTM | What are ATM, ITM and OTM
What are ATM, ITM and OTM ? ATM, ITM and OTM kya hota hai
In options trading, the terms ATM, OTM, and ITM describe how the strike price of an option compares to the current market price of the underlying asset.
What is ATM ? (At the money) ATM kya hota hai
Call Option:
When the strike price of the option is equal to the current market price of the underlying asset.
Put Option:
The same concept applies; the strike price is equal to the current market price.
What is ITM? (In the money) ITM kya hota hai
Call Option:
When the strike price is lower than the current market price of the underlying asset. The option has intrinsic value.
Put Option:
When the strike price is higher than the current market price. This also has intrinsic value.
What is OTM? (Out of the money) OTM kya hota hai
Call Option:
if the strike price is above the current market price of the underlying asset, the option lacks intrinsic value.
Put Option:
if the strike price is below the current market price, it also has no intrinsic value.
Examples of ATM, ITM and OTM
What are Call Options ? Call options kya hota hai?
When you purchase a call option, you have the right to buy shares or stocks at the strike price, but only if it benefits you.
Let’s break down what ITM, OTM, and ATM mean in the context of a call option:
What is ITM — In-The-Money (ITM) Call Option
A call option is considered in-the-money when its strike price is below the current market price of the underlying asset. For instance, if you’re looking at Nifty options for May 2024, where the strike price is ₹11,800 and the spot price is ₹12,000, the intrinsic value would be ₹200, making it an ITM call option. Both time value and intrinsic value are included in this type of option.
What is ATM — At-The-Money (ATM) Call Option
An at-the-money call option occurs when the option’s strike price is almost equal to the current market price of the underlying asset. For example, if both the strike price and spot price are approximately ₹12,000, like the NIFTY JAN 12,000 CALL, the option is considered ATM. These options do not have intrinsic value and only possess time value.
What is OTM — Out-of-The-Money (OTM) Call Option
A call option is classified as out-of-the-money when its strike price is higher than the current market price of the underlying asset. For example, if the strike price is ₹12,200 and the spot price is ₹12,000 in Nifty options, such as the NIFTY MAY 12,200 CALL, it would be an OTM call option. This option has time value but no intrinsic value.
What are Put Options ? Put options kya hota hai?
When trading put options, you are essentially betting that the price of a stock will decrease. Put options give you the right, but not the obligation, to sell a certain amount of an underlying asset at a specific price within a set period
Here’s what ITM, OTM, and ATM mean for put options:
What is ITM — In-The-Money (ITM) Put Option
A put option is in-the-money when its strike price is higher than the current market price of the underlying asset. This type of option has both intrinsic value and time value. For example, if the strike price is above ₹10,000, like in a NIFTY MAY 10,200 PUT, it would be considered ITM.
What is ATM — At-The-Money (ATM) Put Option
A put option is at-the-money when its strike price is almost the same as the current market price of the underlying asset. For instance, if both the strike price and the market price are around ₹10,000, like the NIFTY JAN 10,000 PUT, the option is considered ATM.
What is OTM — Out-of-The-Money (OTM) Put Option
A put option is out-of-the-money when its strike price is lower than the current market price of the underlying asset. With only time value and no intrinsic value. For example, if the strike price is below ₹9,800, like in the NIFTY MAY 9,800 PUT, it would be considered OTM.
Difference between ATM, OTM and ITM
Here’s a simple table explaining the differences between ATM, ITM, and OTM options:
| Type of Option | Description | Call Option Example | Put Option Example |
|---|---|---|---|
| What is At-The-Money (ATM) | The strike price is almost equal to the current market price of the underlying asset. | Strike Price = ₹100, Market Price = ₹100 | Strike Price = ₹100, Market Price = ₹100 |
| What is In-The-Money (ITM) | The strike price is favourable compared to the current market price and gives the option an intrinsic value. | Strike Price < Market Price (e.g., Strike = ₹90, Market = ₹100) | Strike Price > Market Price (e.g., Strike = ₹110, Market = ₹100) |
| What is Out-of-The-Money (OTM) | The strike price is unfavourable compared to the current market price, so that the option has no intrinsic value | Strike Price > Market Price (e.g., Strike = ₹110, Market = ₹100) | Strike Price < Market Price (e.g., Strike = ₹90, Market = ₹100) |
This table simplifies the concepts of ATM, ITM, and OTM for both call and put options.
Key Takeaways
Understand the Concepts: Familiarize yourself with in-the-money, at-the-money, and out-of-the-money options for both puts and calls.
Consider Trading: Explore trading these different types of options.
Thorough Analysis: Investigate and assess each option type carefully.
Evaluate Impact: Recognize how their distinct features can influence potential profits and risks.
Conclusions: Learn ATM, ITM and OTM | What are ATM, ITM and OTM
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