Moneyness — ITM, ATM, OTM

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.

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

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, 90 days left:

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, $6.50 × 200 units = $1,300.

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 →):

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 ($4.50 with 90 days left):

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.