An option is "in-the-money" when exercising the contract would generate immediate value based solely on the current stock price versus the strike price.
ITM Put: A put option is ITM when the stock's current price is below the strike price. For example, a $100 put is ITM if the stock is trading at $95. If assigned, you buy shares at $100 when the market value is only $95 — a $5 paper loss per share.
ITM Call: A call option is ITM when the stock's current price is above the strike price. If you sold a $100 CC and the stock is at $108, your CC is $8 ITM and will likely result in your shares being called away at $100.
Why ITM Matters for Wheel Traders: When a short put goes ITM, the trader faces a decision: roll the option further out, take assignment, or close the position at a loss. The deeper ITM an option is, the more intrinsic value it has and the more expensive it becomes to close or roll.
Examples of In-the-Money (ITM) in Action
- 1Selling a $100 put when the stock is at $105. The stock drops to $97 — the put is now $3 ITM.
- 2A $200 covered call with the stock at $215 is $15 ITM — very likely to result in the shares being called away.
- 3An ITM put at 0.70 delta is mostly acting like a short stock position and carries heavy directional risk.