In-the-money in the context of "Intrinsic value (finance)"

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⭐ Core Definition: In-the-money

In finance, moneyness is the relative position of the current price (or future price) of an underlying asset (e.g., a stock) with respect to the strike price of a derivative, most commonly a call option or a put option. Moneyness is firstly a three-fold classification:

  • If the derivative would have positive intrinsic value if it were to expire today, it is said to be in the money (ITM);
  • If the derivative would be worthless if expiring with the underlying at its current price, it is said to be out of the money (OTM);
  • And if the current underlying price and strike price are equal, the derivative is said to be at the money (ATM).

There are two slightly different definitions, according to whether one uses the current price (spot) or future price (forward), specified as "at the money spot" or "at the money forward", etc.

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In-the-money in the context of Binary option

A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The former pays some fixed amount of cash if the option expires in-the-money while the latter pays the value of the underlying security. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the NYSE American).

While binary options may be used in theoretical asset pricing, they are prone to fraud in their applications and hence banned by regulators in many jurisdictions as a form of gambling. Many binary option outlets have been exposed as fraudulent. The U.S. FBI is investigating binary option scams throughout the world, and the Israeli police have tied the industry to criminal syndicates. The European Securities and Markets Authority (ESMA) has banned retail binary options trading. Australian Securities & Investments Commission (ASIC) considers binary options as a "high-risk" and "unpredictable" investment option, and finally also banned binary options sale to retail investors in 2021.

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← Binary option
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Finance → Price → Financial asset → Stock → Strike price → Derivative (finance) → Call option → Put option → Intrinsic value (finance) → Expiration (options) →