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In-the-Money / Out-of-the-Money

The terms in-the-money (ITM) and out-of-the-money (OTM) are option trading mechanisms that are used by the trader to position based on the current price of the asset. With options trading, investors can bet on the future price and take profits on correct predictions.

For ITM options, investors bet on a price that the asset has already surpassed. The ITM options trading mechanism is used to hedge funds against a position. ITM options are subjected to lesser price fluctuations, resulting in a low-risk trade.

On the contrary, OTM options are used when investors bet on the price, the given asset hasn’t reached yet. Due to the lack of any intrinsic value, OTM options are cheaper than ITM options.

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