These designations refer to the position of the underlying stock’s price relative to the strike price of the option.

  • A call option is in the money if the underlying stock is above the option’s strike price.
  • A put option is in the money if the underlying stock trades below the option’s strike price.

Keep in mind that an option contract being “in the money” doesn’t necessarily mean that its owner will make a profit if she were to exercise it. If you buy a \$10 Call option at a \$2 premium, your call is in the money when the stock trades at \$11, though you wouldn’t break even until it hits \$12.