What is the meaning of “In-the-Money” and “Out-of-Money” in the context of options trading?
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 $10.00 Call option at a $2.00 premium, your call is in the money when the stock trades at $11.00, though you wouldn’t break even until it hits $12.00.