ATM, ITM & OTM in Option Trading – What Do They Mean? (With Simple Examples)

 If you’re confused by the terms ATM, ITM, and OTM while trading options — don’t worry. This is one of the most important basics every trader should know.


Let’s simplify it with examples 👇


🔹 What is ATM (At the Money)?

ATM means the strike price is closest to the current market price of the asset.


✅ Example:


Nifty is at 22,750


Closest strike = 22,750 → this is ATM


👉 Used for:


Scalping


High volume trades


Good liquidity


🔹 What is ITM (In the Money)?

ITM means the strike price is already profitable if exercised immediately.


✅ Call Option (CE) is ITM when:

Strike Price < Spot Price

Example: Nifty is at 22,800 → 22,700 CE is ITM


✅ Put Option (PE) is ITM when:

Strike Price > Spot Price

Example: Bank Nifty is at 48,200 → 48,500 PE is ITM


👉 Benefits:


Higher premium


Higher delta


More stable


🔹 What is OTM (Out of the Money)?

OTM means the option is not yet profitable, but may become profitable if the price moves.


✅ Call Option (CE) is OTM when:

Strike Price > Spot Price

Example: Nifty is at 22,700 → 22,900 CE is OTM


✅ Put Option (PE) is OTM when:

Strike Price < Spot Price

Example: Bank Nifty is at 48,000 → 47,700 PE is OTM


👉 Benefits:


Low premium (cheap entry)


Higher risk, higher reward


📊 Summary Table

Term Call Option Example (Nifty @ 22,800) Put Option Example (Nifty @ 22,800)

ITM Strike 22,700 CE Strike 22,900 PE

ATM Strike 22,800 CE Strike 22,800 PE

OTM Strike 22,900 CE Strike 22,700 PE


📌 Conclusion:

✅ ITM = Safer but costlier


✅ ATM = Balanced, most liquid


✅ OTM = Risky, cheap, fast-moving


Learn these basics to build stronger option strategies.


👉 Follow Finfo Traders for daily learning & smart trading!



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