Moneyness — ITM, ATM, OTM
Grant finds two Put options on the same SOL, a $90 strike at $10.80 and an $80 strike at $5.80, and wonders why one costs almost twice as much. A target analogy for ITM, ATM and OTM, how premium splits into intrinsic and time value, and why time value melts faster near expiry.
The three option price zones
Every option, at any given moment, sits in one of three zones. The zone depends on where the current price stands relative to the strike price.
Picture flood insurance on a house. If your house sits right next to the river (close to the danger) — insurance is expensive. If the house is up on a hill (far from the danger) — insurance is cheap. OptionOptionA financial contract that grants the right (but not the obligation) to buy or sell at a set price.Read the lesson → zones work the same way — the closer you are to the "danger zone," the more expensive the option.
| Zone | Name | What it means in plain terms |
|---|---|---|
| ITM | In The Money | The option already "works" — it has intrinsic value. Whether the whole position is profitable also depends on the premium you paid |
| ATM | At The Money | The strike price is roughly equal to the current price |
| OTM | Out of The Money | The option doesn't "work" yet — intrinsic value is $0, the price hasn't reached the strike |
How does this work for Call and Put options?
The zones work in opposite directions for CallsCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson → and PutsPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →:
For a Call option (the right to buy):
- ITMITMIn The Money — an option that has intrinsic value.Read the lesson →: price is above the strike (you can buy cheaper than the market)
- ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson →: price equals the strike
- OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson →: price is below the strike (no point in buying)
For a Put option (the right to sell):
- ITMITMIn The Money — an option that has intrinsic value.Read the lesson →: price is below the strike (you can sell higher than the market)
- ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson →: price equals the strike
- OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson →: price is above the strike (no point in selling)
Worked example: SOL at $88
The example uses SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → = $88. At the time of writing (2026-09) the market was around $102 — the numbers are illustrative, and the mechanics do not depend on the price.
Here's how different options line up:
What makes up an option's price?
Every option's price (premium) has two parts:
Premium = Intrinsic Value + Time Value
Intrinsic Value:
- This is the cash you'd get if you exercised the option right now
- If the option is OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson → — intrinsic value = 0
- Simple math: PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → = strike minus price (if positive)
Time Value:
- This is the extra price you pay for time remaining
- The more time is left, the more can happen — the more expensive it is
- Once the option expires — time value = 0
Example: how the price is built
SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → price: $88. PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → option, StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → $90, 120 days left:
| Part | Value | Explanation |
|---|---|---|
| Intrinsic value | $2.00 | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → $90 minus price $88 = $2 |
| Time value | $8.80 | 120 days left — a lot can still happen |
| Total price | $10.80 | That's what the option costs |
Note: this is the price per unit (1 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson →). The total position value = price × quantity — for example, $10.80 × 200 units = $2,160. The premium is calculated at the 2026-09 market level (SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → around 50%); it moves every day together with IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →.
Now the same PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson →, but StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → $80 (OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson →):
| Part | Value | Explanation |
|---|---|---|
| Intrinsic value | $0.00 | StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson → $80 < price $88 — doesn't apply |
| Time value | $5.80 | The probability that SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → falls below $80 |
| Total price | $5.80 | Cheaper, because it's less likely |
OTMOTMOut of The Money — an option with no intrinsic value, only time value.Read the lesson → options have no intrinsic value. You're only paying for the probability that the price reaches the strike. The further away the strike, the lower the probability — the cheaper it gets. It's like insurance against a meteor strike — very unlikely, so the premium is small.
Why does the zone matter for our strategy?
We use options across different zones. Each one has its own reason:
Time value decays faster and faster
Here's an important point: time value doesn't decay evenly. It decays faster as expiry approaches.
Below is an ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson → PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → (strike $88, SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → $88). Notice that time value is largest right at ATMATMAt The Money — an option whose strike sits at the current price.Read the lesson →, which is why these numbers are bigger than the $90 PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → we calculated earlier ($8.80 with 120 days left):
| Time left | Time value (approximate) | Decay speed |
|---|---|---|
| 120 days | $9.50 | Slow |
| 90 days | $8.20 | Moderate |
| 60 days | $6.70 | Speeding up |
| 30 days | $4.70 | Fast |
| 14 days | $3.20 | Very fast |
| 7 days | $2.30 | Critical |
| 1 day | $0.90 | Nearly zero |
Calculated at an implied volatility (IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson →) of 50% — the typical SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → level in 2026-09. IVIVImplied Volatility — the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson → keeps moving, and every number in this table moves roughly in proportion with it. So always check actual premiums on the exchange and take only the shape from this table — the way decay accelerates towards expiry.
That's why our strategy uses 120-day options and rolls them into new ones once 30 days are left. This way we avoid the fastest part of the decay.
The zone can change
An option's zone isn't fixed forever — it shifts along with the price:
- You bought a $90 PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → when SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → was $88 — ITM
- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → rises to $95 — the same PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → is now OTM (doesn't work)
- SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson → falls to $70 — the same PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson → is now Deep ITM (very valuable)
Your protection's effectiveness shifts along with the market. That's why it's important to keep watching.
Once you understand this, you can open any options table and instantly tell which zone an option is in and how much of its price is real value versus just time. You'll use that skill in every lesson from here on.
Next step: let's move on to the Greeks — DeltaDeltaAn option's price sensitivity to the underlying price. Delta 0.50 means: if the underlying rises $1, the option price rises about $0.50.Read the lesson →, ThetaThetaAn option's change in value from the passage of time. Negative for the buyer (a cost), positive for the seller (income).Read the lesson →, GammaGammaThe rate of change of delta. High gamma means delta shifts quickly as the price moves.Read the lesson →, VegaVegaAn option's sensitivity to volatility (IV). High vega means the option price depends heavily on IV.Read the lesson →. They show exactly how an option's price reacts to changes.
ITM, ATM and OTM stick best when you sort real options yourself. This paper exercise (~15 min) is just reading and calculating by hand — no buying.
We're learning to read and calculate, NOT to trade — don't buy anything. Write every number down on paper.
This is learning, not investing — use only small amounts you treat as tuition.
You just sorted real options into their zones and separated intrinsic value from time value — most traders never learn to do this by hand.