## IN THE MONEY STOCK OPTIONS (ITM) - Options Trading Basics

Options which have a positive 'intrinsic value' are called in the money options. In case of a Call Option, the option is in the money if the strike price of the option is less than the current market price of the underlying. In case of Put Options, the option is in the money if the strike price of the Option is greater than the current market price of the underlying. The concept of in the money stock options is easy and is best understood by an example.

Example of In the Money Call and Put Option - Suppose you buy a Call Option on a stock whose current value is Rs. 500. The strike price of the Option is Rs. 480. This means the call option gives you, the buyer of the Option, the right to buy one market lot of the stock at the price Rs. 480. Note that if you were to exercise your Option immediately, you would gain Rs. 20 per stock. Thus the intrinsic value of this call option is Rs. 20. The stock option you have purchased is in the money.

On the other hand if you had purchased a put option on this stock with strike price of Rs. 550, then the intrinsic value of that put option would be Rs. (550-500) = Rs. 50. This put option would be in the money. On the other hand a put option on the same stock with a strike price of Rs. 450 would not be 'in the money' because exercising it would not result in any profit.

- Deep in the Money Options - Options with very large intrinsic value are sometimes called deep in the money options. For a Call Option to be 'deep' in the money, the current price of the underlying has to be very large as compared to the strike price. For a put Option to be deep in the money the strike price has to be very large as compared to the current price of the underlying. Deep in the money options behave just like a future.
- In the money options have a higher value of delta, i.e. the variation of their price per unit variation in the price of the underlying is high. For options which are deep in the money, delta is close to 1.

Options Greeks Stock Market Derivatives: Futures, Options Options Trading Basics In the Money Stock Options At the Money Stock Options Out of the Money Stock Options |

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