In, At, or Out of the Money: How Far Is the Strike From the Price?
Compare any strike to the current price and it falls into one of three buckets: in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM). These words do not predict the next move. They only describe, right now, how far the strike sits from the price — and what the option would pay if exercised immediately.
Three verified definitions
The examples below all use the same numbers: suppose the SPX is around 7,400 (these numbers are examples, not live quotes).
In-the-money: exercising right now would pay something. For a call, the price is above the strike; for a put, it is the other way round — the price is below the strike. Example: with the index at 7,400, a 7,350 call is ITM, and a 7,450 put is ITM too.
At-the-money: the strike is about equal to the current price. At 7,400, the 7,400 call and the 7,400 put are both ATM. An ATM option has no intrinsic value.
Out-of-the-money: exercising right now would pay nothing. For a call, the strike is above the price; for a put, the strike is below the price. Example: at 7,400, a 7,450 call is OTM, and a 7,350 put is OTM too.
The label moves with the price: an option that is OTM in the morning can turn ITM by the afternoon as the price moves. The label describes the present moment — it does not guarantee where the option will be at expiry.
Intrinsic value and time value
An option's price = intrinsic value + time value.
Intrinsic value: what exercising right now would pay. For a call it is the price minus the strike; for a put it is the strike minus the price; a negative result counts as zero. Only ITM options have intrinsic value. Example: index at 7,400, a 7,450 put has 50 points of intrinsic value — at $100 per point, that is $5,000 per contract.
Time value: everything in the price above intrinsic value — the price of "it could still end up in the money before expiry." ATM and OTM options are pure time value, and time value falls to zero at expiry.
What happens at expiry: an option that is still OTM at expiry is worth nothing; an SPX contract that is still ITM at expiry settles in cash. SPX is European-style: it can only be exercised on the expiry date, never early.
Simulate first, then talk about anything else
This simulator uses CBOE delayed quotes (about 15 minutes delayed), starts with $10,000 virtual cash, charges $0.65 per contract per side, and shows P&L net of fees. Its purpose is to practice order entry, discipline, and review. It is not investment advice and promises no returns.