ThinkorSwim Tutorial - Options ITM, ATM, OTM and the Intrinsic Value

This tutorial explains how to analyse the Options’ Moneyness and the Intrinsic Value in the ThinkorSwim Trading Platform. By the end of this article you will be able to easily understand when an Option is ITM, ATM, OTM. If you find this tutorial interesting read also: ThinkorSwim Tutorial - Risk Graph Analysis.

How to place the most rewarding options strategies from scratch? Visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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The moneyness is a fundamental concept that influence the price of Options. Because of their moneyness, Options can be distinguished in ITM, ATM, OTM:

• In-the-money (ITM), these are Options having intrinsic value. Options expiring ITM are so called because they are able to bring cash in your pockets. Call Options are ITM when the strike price is lower than the underlying price (e.g. the Stock). Put Options are ITM when the strike price is higher than the underlying price.
• At-the-money (ATM), these are Options which strike price is very close to the underlying price and so they have a good probability to end up ITM at expiration.
• Out-of-money (OTM), these are Options not having intrinsic value. Options expiring OTM are worthless. Call Options are OTM when the strike price is higher than the underlying price (e.g. the Stock). Put Options are OTM when the strike price is lower than the underlying price.

Free Tutorials - Stocks, Options and ThinkorSwim. Click Here.

The intrinsic value is determined in a different way for Calls and Puts. For Call Options it is the difference between the value of the underlying (stock) and the Option Strike. For Put Options it is the difference between the Option Strike and the value of the underlying (stock).

Call (intrinsic value) = value of the underlying - Call Option Strike

Put (intrinsic value) = Put Option Strike - value of the underlying

Important to know! In the Think or Swim platform all Call and Put Options ITM are highlighted with a brighter colour. However, you can easily notice that:

• Calls and Puts ITM are traded at higher prices (check Bids and Asks columns)
• Calls and Puts ITM have “Delta” closer to 1 for Calls or to -1 for Puts (the Delta is a value that goes from 0 to 1 for Calls and from 0 to -1 for Puts). The closer is this value to 1 or -1 and the higher is the probability of the Option to expire ITM.

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Do not forget to visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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In the next GroWithYou Trading Tutorial:

• How to set Price Slices on your Risk Graph
• Visualize Price Slices on the Stock Chart
• How to simulate the changing of all parameters on your Risk Graph

Keep learning about Exercising Stock Options by going to: ThinkorSwim Tutorial - Setting Price Slices on Risk Graph and Stock Chart.

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