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What are the states of Options?

  • Updated

The relationship between the current price of the underlying asset (for delivery on the settlement date) and the Strike Price determines whether the option is classified as one of the following:

 

At-the-Money (ATM)

For both Call and Put Options, the option is At-the-Money (ATM) when the Strike Price is equal to the current Market Price of an underlying asset.

 

 

In-the-Money (ITM)

An option is In-the-Money (ITM) when the Market Price of the underlying asset is favourable compared to the Strike Price. (above for Calls and below for Puts)

 

For Call Options

A Call Option becomes In-the-Money (ITM) when the Market Price of the underlying asset is above the Strike Price. 

Example

You purchase a Call Option with a $55,000 Strike Price. The current Market Price of BTC is now $60,000. In this case, it's ITM by $5,000 and you have the right to buy BTC at $55,000.

 

For Put Options

A Put Option becomes In-the-Money (ITM) when the current Market Price of an underlying asset is below the Strike Price.

Example

You purchase a Put Option with a $65,000 Strike Price. The current Market Price of BTC is now $60,000. In this case, it's ITM by $5,000 and you have the right to sell Bitcoin at $65,000.

 

 

Out-the-Money (OTM)

An option is Out-the-Money (OTM) when the Market Price of the underlying asset is favourable compared to the Strike Price. (below for Calls and above for Puts)

 

For Call Options

A Call Option becomes Out-the-Money (OTM) when the Market Price of the underlying asset is below the Strike Price. 

Example

You purchased a Call Option with a $55,000 Strike Price. The current Market Price of BTC is now $50,000. In this case, it's OTM by $5,000 and it would not be advantageous to exercise your right to buy Bitcoin at $55,000.

 

For Put Options

A Put Option becomes Out-the-Money (OTM) when the Market Price of the underlying asset is above the Strike Price. 

Example

You purchase a Put Option with a $65,000 Strike Price. The current Market Price of BTC is now $70,000. In this case, it's OTM by $5,000 and it would not be advantageous to exercise your right to sell Bitcoin at $65,000.

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