In the Money (ITM)
What it is:
In the money refers to an option contract that, if it were exercised today, would be worth more than $0.
A call option is said to be in the money when its exercise price is below the current price of the underlying asset. Put options are in the money when the exercise price is above the market price of the underlying asset.
How it works (Example):
Suppose ABC stock trades at $300 per share. An ABC call option with a strike price of $200 is in the money since the option holder could buy ABC at $200 and turn around and sell it for $300. The intrinsic value of this call option is $100.
Likewise, an ABC put option with a strike price of $350 is in the money because the option holder could buy a share of ABC for $300, then turn around and sell it via the option for $350. The intrinsic value of the put option is $50.
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Why it Matters:
If the option holder doesn’t have enough funds to pay the strike price, he should sell the in the money option so as to lock in a profit before the option expires.