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In the Money Options: how traders profit from the movement of stocks without actually owning them...

In the money options (ITM) are a good way to participate in a stock's price movement without actually owning the stock.

Traders will often target the ITM option as its price moves very close to the stocks actual price movement.

For example: You buy an option for $1 on a $30 stock. The stock moves up in price to $31. A 3% gain, very realistic.

The $1 "ITM option" will also move up a dollar in price to $2. A 50% gain, also very realistic.

Now let me give you a minute to wipe the drool from your mouth and tell you that these are just examples. Yes it plays out "somewhat" like that, but don't count on it.

I'm getting ahead of myself. Let me define what In the money options (ITM) are.


A "Call option" would be ITM if the stock price were trading "above" the strike price.

For example, suppose the stock price is $40 and the strike price is $20. You would have the right to "buy" the stock for $20.

If you exercised your right and bought the stock for $20, you could immediately sell it for $40 on the open market and earn a $20 profit.

Another way to explain it is that you could say your option has $20 of real value because you can exercise your option and buy the stock for $20 less than the current market price.

A "Put option" is ITM if the strike price is "higher" than the market price of the underlying stock.

Here's a picture for you visual learners:

in the money options

ITM options cost more, but people like them because they generally move dollar for dollar with the stock price.

It's not a strategy I trade so I don't have much else to say on the matter (smile).

Here is a quick video overview:

  • You'll learn how some stock traders buy options as a cheaper way to trade stocks...
  • And I'll walk you through a trade example with $1,570 in profit...


Products Created by Trader Travis

Options Trading Made Simple Book

Options Trading Made Simple Course

Marketclub Options (offered via Marketclub)


Free Options Course Learning Modules

Module 1: Option Basics

Module 2: Option Value

Module 3: Basic Strategies

Module 4: Stock Charts

Module 5: Technical Indicators

Module 6: The 7-step process I use to trade stock options




Return to Learn Stock Options Trading Home Page

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