Online Trading Concepts

At-the-Money (ATM) Options

Option Chain for the S&P 500

An option whose strike price is near where the stock price is currently. For example, if the stock of XYZ is trading at $50.15, the $50 strike price for both puts and calls would be considered to be the at-the-money option strike price. An at-the-money option has little to no intrinsic value.

In-the-Money (ITM) Options

For calls, an option whose strike price is below where the stock price is currently. For example, if the stock of XYZ is trading at $50.34, the $45 strike price would be considered to be an in-the-money call option. An in-the-money call option is primarily made up of intrinsic value, with very little extrinsic value.

Note: Deep in-the-money refers to a strike price with basically all intrinsic value. In the example above, a strike price of $35 might be considered deep in-the-money because the strike price for the call is so far below the current stock price of XYZ.

For puts, an option whose strike price is above where the stock price is currently. For example, if the stock of XYZ is trading at $50.34, the $55 strike price would be considered to be an in-the-money put option. An in-the-money put option is primarily made up of intrinsic value, with very little extrinsic value.

Out-of-the-Money (OTM) Options

With calls, an option is out-of-the-money if the strike price is above where the stock price is currently. For example, if the stock of XYZ is trading at $49.87, the $55 strike price would be considered to be an out-of-the-money call option. An out-of-the-money call option is made up of entirely extrinsic value.

With puts, an option is out-of-the-money if the strike price is below where the stock price is currently. For example, if the stock of XYZ is trading at $50.34, the $45 strike price would be considered to be an out-of-the-money put option. An out-of-the-money put option is entirely extrinsic value.

The following option chain of the S&P 500 exchange traded fund (SPY) shows in-the-money, at-the-money, and out-of-the-money calls and puts:

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