In the Money / Out of the Money

"In the money" (ITM) and "out of the money" (OTM) describe where an option's strike price sits relative to the underlying's current price. On the NSE, where Nifty and Bank Nifty options are among the world's most traded contracts, this is the first thing a trader checks before buying or selling.

The simple rule

For a call option (right to buy), it is in the money when the current price is above the strike, you could buy cheaper than the market. For a put option (right to sell), it is in the money when the current price is below the strike. If neither is true, the option is out of the money. When the price sits roughly at the strike, it is "at the money" (ATM).

A quick India example

Suppose Nifty is trading near a certain level. A call with a strike below that level is ITM; a call with a strike well above it is OTM. The OTM call is cheaper because it currently has no intrinsic value, only time value, the hope that the index rises before expiry.

Why it matters for traders

OTM options are cheap but most expire worthless, since the move you are betting on may never come. ITM options cost more (they carry intrinsic value) but behave more like the underlying. Most retail F&O activity in India clusters in OTM weekly options precisely because they are cheap, which is also why SEBI's own studies show the large majority of individual F&O traders lose money.

Practical POV

Moneyness is not a strategy by itself; it is geography. Decide your view and risk first, then choose a strike. Remember that on expiry day in India, index options are cash-settled, so an ITM option pays the intrinsic value and an OTM option simply lapses to zero. Treat far-OTM options as lottery tickets, not investments.