Module 5   Introduction to Options Trading (Video Series)Chapter 6

Moneyness of option

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6.1 – Moneyness of a Call and Put Option

Moneyness of an option is a classification method which classifies each option strike based on how much money a trader is likely to make if he were to exercise his option contract today. There are three broad classifications –

  1. In the Money (ITM)
  2. At the Money (ATM)
  3. Out of the Money (OTM)

We will learn about them in detail in this video.

We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.


Key takeaways from this chapter

  1. The intrinsic value is equivalent to the value of money the option buyer makes provided if he were to exercise the contract.
  2. The intrinsic value cannot be negative; it is a non zero positive value.
  3. The intrinsic value of call option = Spot Price – Strike Price
  4. The intrinsic value of the put option = Strike Price – Spot Price.
  5. Any option with an intrinsic value is classified as an ‘In the Money’ (ITM) option.
  6. Any option that does not have an intrinsic value is classified as an ‘Out of the Money (OTM) option.
  7. If the strike price is almost equal to the spot price, the option is considered the ‘At the money (ATM) option.
  8. All strikes lower than ATM are ITM options (for call options)
  9. All strikes higher than ATM are OTM options (for call options)
  10. All strikes higher than ATM are ITM options (for Put options)
  11. All strikes lower than ATM are OTM options (for Put options)
  12. When the intrinsic value is very high, it is called the ‘Deep ITM’ option.
  13. Likewise, it is called the ‘Deep OTM’ option when the intrinsic value is the least.
  14. The premiums for ITM options are always higher than the premiums for OTM options.
  15. The Option chain is a quick visualisation to understand which option strike is ITM, OTM, ATM (for both calls and puts), and other information relevant to options.

15 comments

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  1. Varghese Mani says:

    excellent presentation. how to go to the next module.

  2. Poornesh says:

    Sir, can we expect some videos on Option Strategies as well in the upcoming sessions?

  3. Deepika Deepak Chavan says:

    very informative videos, thank you versity. Requesting to share more video’s on option trading (like practical execution’s, how to select strike price, intraday trading in options)

  4. Prashant Chaudhary says:

    I was awaititng long to clear technical F&O concept.
    Thank you Karthik and Zerodha.

  5. Nagesh says:

    Hello Karthik Ji,

    I have already posted my query on 14.07.22 but still I didn’t get response from your end, so I am posting my query one more time

    Why does the Open Interest shown in NSE option chain is different from Open Interest shown in Sensibull option chain? In fact OI numbers from these two websites are nowhere to each other. Or am I missing something to read? E.g. On 14 July 2022 at 11:22 pm OI shown on NSE open chain for Nifty Index 16000CE & 16000 PE are 1,67,185 & 2,06,550 respectively where as on Sensibull website OI for the same 16000 CE & 16000 PE are 86.3 Lakhs and 103.3 lakhs respectively. Or am I missing something to read? Please Guide.

    • Karthik Rangappa says:

      Nagesh, I think you should check with Sensibull itself and may post your findings here to benefit others.

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