Understanding options: In the money, at the money, and out of the money

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Know where you stand.

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In options trading, you’ll often encounter a little lingo about the money. An option might be “in the money,” “out of the money,” or even “at the money.” Whether an option is in, at, or out of the money at any given moment—especially at expiration—is what traders call its moneyness.

Think of “the money” as where the underlying stock (or other security) is trading relative to the option’s strike price. That relationship—whether the option is a call or a put—determines if it’s in, at, or out of the money. It doesn’t tell you whether you’re making or losing money on the trade; it just tells you where the option stands in structural terms. Your profit or loss depends on the option’s current value relative to the premium you paid (if you bought the option) or collected (if you sold it).

Where moneyness matters most is at expiration, because that’s when the option is either exercised or left to expire worthless. In options lingo, an in-the-money option has intrinsic value—that is, the difference between the strike price and the underlying—while an out-of-the-money option does not.

It’s a lot to unpack, so let’s break it down.

To better understand moneyness, let’s start with a call option, which gives the buyer the right (but not the obligation) to buy a stock at a set price (the strike price) at or before expiration. The blue line in figure 1 shows how the value of a long call changes depending on where the stock price ends up.

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Figure 1: THE MONEYNESS OF A LONG CALL OPTION. When a call option expires, any price in the underlying asset below the strike price is out of the money; any price above it is in the money; and the strike price itself is at the money. Why doesn’t this long call position begin to profit right at the strike? Because the owner paid a premium to buy it, so the underlying has to rise a little further to break even. Learn more about options risk profiles like this one.

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Here’s how the moneyness plays out.

For example, if the underlying stock is trading at $100, the 105-strike call is out of the money by $5 and expires worthless.

An at-the-money option typically expires worthless, since there’s no advantage to exercising it. In most cases, in-the-money options are automatically exercised by your broker at expiration. However, options on stocks, ETFs, and many futures contracts allow the option owner to manually exercise an option even if it’s at the money (or slightly out of the money).

If you hold a short option through expiration, you might be assigned an unwanted position in the underlying, and you won’t be able to do anything about it until the next trading day. This is known as pin risk. It’s rare, but it does happen—and it’s another reason why most traders liquidate their option positions before expiration.

Now let’s flip it. A put option gives the buyer the right to sell the underlying at the strike price at or before expiration. That right becomes more valuable as the stock price drops. The blue line in figure 2 shows how the value of a long put changes depending on where the stock price ends up.

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Figure 2: THE MONEYNESS OF A LONG PUT OPTION. When a put option expires, any price in the underlying asset below the strike price is out of the money; any price above it is in the money; and the strike price itself is at the money. At expiration, a long put position begins to be profitable if the underlying falls far enough below the strike price to cover the premium paid.

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For example, if the underlying stock is trading at $100, a 95-strike put is out of the money by $5 and expires worthless.

At expiration, an at-the-money put usually expires worthless; there’s no benefit to selling the stock at a price equal to what it’s already worth.

As with calls, most in-the-money puts are automatically exercised at expiration. But options on stocks, ETFs, and many futures contracts allow the option holder to exercise manually—even if the put finishes at the money or slightly out of the money. So, again, remember pin risk and consider liquidating at-the-money options prior to expiration.

So far we’ve looked at moneyness one option at a time, but many real-life strategies (option “spreads”) use more than one option at once. And in those cases, one leg of the position might finish in the money while another finishes out.

Take a vertical spread, for example. This strategy involves buying one option and selling another with a different strike price. If you were to sell a call vertical spread (that is, sell a call option and buy another of the same expiration date but with a higher strike price), if the underlying finishes below your lowest strike, both options are out of the money and you would pocket the premium you collected up front. Your point of maximum loss would be any price in the underlying above your high strike. The area in between the strikes is the zone of uncertainty, with one option in and one out of the money.) See our explainer on vertical option spreads for more.)

Here’s another example: A long straddle involves buying both a call and a put with the same strike. As shown in figure 3, only one of those options can be in the money at expiration; the other will be out of the money. You’re betting on a big move, but you don’t know in which direction. Moneyness determines which side of the trade has value at the end.

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Figure 3: STRADDLING THE MONEYNESS LINE. A long option straddle, which consists of a long call and a long put with the same strike price and expiration date, will have at most one leg finish in the money. If the underlying is higher than the strike price at expiration, you’ll exercise the call but not the put. If it’s below the strike at expiration, you’ll exercise the put but not the call.

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Moneyness also affects an option’s delta, which measures how sensitive its price is to changes in the underlying. At-the-money options have a delta of 0.50 (or -0.50 in the case of a put option)—it’s a coin flip as to whether it will be in or out of the money at expiration. In-the-money options have a delta higher than 0.50 (lower than -0.50 for a put option). The further out of the money the strike price is, the closer its delta is to zero.

In other words, delta reflects the likelihood that an option will finish in the money. At expiration, an option’s delta is either zero or 1.0 (-1.0 for a put). Delta is one of the option risk metrics known collectively as the “greeks.” To lear more about risk metrics, check out our option greeks explainer and our article on delta and gamma.

Moneyness is a modern teaching term in the world of derivatives; older books and options tutorials didn’t have a general term to encompass the three states of moneyness. Whether you’re trading single options or complex spreads, moneyness tells you what’s worth something and what’s not—especially as expiration approaches.

Moneyness is a great place to start, but derivatives trading is complex and full of moving parts. You’ll also need to understand the specs, what the risk profile looks like for your position, how to roll an options position if you’re looking to extend your strategy past expiration, and even take a deep dive into the greeks to really understand the risk components, including how your position responds to volatility and the passage of time.