Options traders who are considering a position’s profitability—whether they have intrinsic value—use specific terms that compare the option’s strike price with the underlying asset’s market price.
The three key positions are as follows:
At-the-money (ATM): The option’s strike price equals the current market price of the underlying asset. This is breaking even.
In-the-money: Given the current market value, there is an immediate profit in exercising the option. For call options, this means the market price is above the strike price. For puts, it’s the opposite—the market price is below the strike price.
Out-of-the-money: Exercising the option would result in a loss. For calls, this means the market price is below the strike price. Nobody would pay more through the option when it could be bought for less in the market. For puts, it means the market price is above the strike price.