In the Money Call (ITM) Options: Meaning, Examples, Pros & Cons | Share India
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Call options are the best short-term substitute for purchasing equities you don't intend to have in your portfolio for the long term. Moreover, options can be a part of every balanced portfolio. You may bank similar gains for a small fraction of the capital outlay, and you can terminate the trade at any moment or just settle till expiration when it is closed. The funds you initially intended to set aside for stock purchases may generate even greater profits for you. Therefore, you can demonstrate the substantial gains you are getting by conserving money rather than using it all at once whenever anyone claims that you must spend money in order to generate money.

One of the classification terminologies used to define an option contract is "in-the-money" (ITM). So, we shall see what in-the-money call options are in detail. We will strive to know what it is, along with its benefits and downsides.

What is In-The-Money Call Option?

Before ever considering genuine options trading, traders must be familiar with all three option moneyness states, including in-the-money options. Out-of-the-money options and at-the-money options are the other two option states. This subject is simpler to comprehend once you know how alternatives are valued. Transacting in-the-money ois actually what trading novices should go with. It is relatively less risky and can still offer a decent profit. Options that may be exercised to buy the underlying stock for less than the current market value or to sell the underlying stock for more than the current market price are referred to as in-the-money options. Our options calculator is also a great way to test different trading strategies and what results they would yield.


Advantages of In-The-Money Call Option? 

  • A call option buyer who is currently in-the-money (ITM) at expiry may make money if its market price is higher than the strike price.

  • An investor with a put option that is in-the-money can make money if the market price drops below the strike price.

  • ITM calls have a delta closer to 1, so they move more in line with the underlying stock price. This provides greater leverage compared to out-of-the-money calls.

  • There is a higher probability of an ITM call option expiring in profit compared to OTM options. The option has intrinsic value built-in.

  • ITM calls can be exercised by the buyer anytime before expiry to capture the intrinsic value. This provides flexibility.


Disadvantages of In-The-Money Call Option? 

  • Options in-the-money are more expensive than options as investors have to pay for the contract's profit.

  • Investors must also factor premium and commission fees into their profitability calculations of an in-the-money option.

  • The higher premium results in lower leverage compared to OTM calls. Less capital is freed up for other opportunities.

  • Time decay accelerates as options move deeper ITM, reducing value faster as expiry approaches.

  • Profit is capped at the strike price plus premium paid. Lower potential for multiplication of returns compared to OTM calls.

As we covered what is and its benefits & drawbacks in the share market, you can explore more about ITM options in the share market before doing any trading in the share market.


In-The-Money Option Example

Take the ABC firm as an example. ABC Company Ltd.'s shares are now selling at Rs.750 each. When a call option has a Rs.650 strike price, it is considered to be currently in-the-money since the option holder has the choice to buy the option and immediately sell it for Rs.100. In this case, the intrinsic value of the option is Rs 100.

In other circumstances, if a put option is purchased on the company's shares and has a Rs.800 strike price, it would again be in-the-money since the option holder would have the ability to buy an option and then sell it immediately forRs.800. The option will be worth Rs.100. The transaction, however, will need to go deeper into the Money in order to be profitable in case the option is in-the-money during purchase. Our options price calculator is a powerful tool that can help you manage your risk and maximize your profits.


How Being In-The-Money Affects an Option’s Premium?

The "moneyness" of an option, or whether it is "in the money," "at the money," or "out of the money," affects the option's premium. An option is considered "in the money" if the current stock price is favorable for the holder to exercise the option and realize a profit. An "in the money" option generally has a higher premium compared to an "out of the money" option, as the holder is more likely to exercise it and realize a profit. An "at the money" option has a premium that is somewhere between "in the money" and "out of the money" options. The exact premium depends on various factors, such as volatility, time to expiration, and interest rates.


What Happens When Options Expire In-The-Money?

The call option buyer has the choice, but not the responsibility, to buy the specified number of shares of a stock at the call option's strike price. The obligation to sell a specified number of shares of the underlying asset at the option's strike price is placed on the seller of a call option, which expires in-the-money. You can terminate the transaction before expiration or move it to a later expiration cycle to avoid being assigned.



It will start to seem more instinctive and natural when you start to use the phrase "in-the-money" more frequently. As long as it doesn't, keep using the tools and information at your disposal to comprehend the word because it's crucial to comprehending options pricing.

FAQs on In-The-Money (ITM) Call Options

If the existing price of a stock is trading at a price higher than the strike price of the call option, it’s said to be in-the-money. We refer to it as “in-the-money call options,” as the trader has the right to buy them below the stock’s market price.

An ITM call option does not legally "expire" because they are often executed before expiration. The trader will either exercise the call option and buy the underlying stock at its strike price or sell the option to another trader who wants to execute it if it is in-the-money on the expiration day. A program that streamlines this process on the expiration date upon market close may be available through your brokerage, so check to see if it is available.

An ITM option costs you more money than other options since it has an intrinsic value, which the others lack... If both the expiry date and the underlying asset remain constant, the premium will be higher.

The price of an in the money option in India consists of the intrinsic value plus the time value/premium. Intrinsic value is the difference between the strike price and the underlying asset's market price.

Yes, deep in the money, call options have higher intrinsic value as there is a bigger difference between the strike price and the market price of the underlying.

At expiry, the money option's price will equal its intrinsic value, as there is no time value left. The option holder can exercise the option to buy/sell the underlying at the strike price.
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