# What is the difference between At-the-Money, In-the-Money and Out-of-the-Money Options?

An in-the-money (ITM) option is an option that has intrinsic value, meaning it has value beyond the value of the premium paid for it. An option is considered ITM if the current market price of the underlying asset is above the strike price of a call option, or below the strike price of a put option. For example, if a call option has a strike price of $50 and the current market price of the underlying asset is $60, the option is ITM by $10, because the holder of the option can exercise it to buy the underlying asset at $50 and then sell it immediately for $60, realizing a profit of $10.

An out-of-the-money (OTM) option, on the other hand, is an option that does not have intrinsic value. It only has extrinsic value, which is the value of the option's premium. An option is considered OTM if the current market price of the underlying asset is below the strike price of a call option, or above the strike price of a put option. For example, if a call option has a strike price of $50 and the current market price of the underlying asset is $40, the option is OTM because the holder of the option would not be able to exercise it to buy the underlying asset at a profit.

The intrinsic value of an option is an important factor in determining its price, as it represents the potential profit or loss that the option holder can realize if they exercise the option. Options that are ITM tend to be more expensive than OTM options, because they have the potential to generate a profit if exercised.