What are ITM, ATM, OTM in option trading ?
Chances of losing in OPTION trading are very high because in this, traders trade without thinking and without knowledge of the market and then after suffering a loss, they say that they leave the market, this is a gambling. You should trade in options only when you have knowledge of it, otherwise you will lose your money.
To trade in options, the important information should be that what is ITM/ATM/OTM because when you start knowing about ITM/ATM/OTM in option trading, then your chances of loss will reduce and the margin of profit Will increase.
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What is the full name of ITM/ATM/OTM OPTION TRADING STRIKE PRICES?
The full form of
ITM is IN THE MONEY.
ATM is AT THE MONEY.
OTM is OUT OF THE MONEY.
Why is it important for beginners to know ITM/ATM/OTM ?
It is very important for beginners to know ITM/ATM/OTM because if you are a new trader in the market and you do not know about ITM/ATM/OTM then you will get lost. Because if we buy premium of OTM strike price in the market, then the prices of that strike price will increase very little due to which your profit will reduce.
And if you buy the premium price of the same ATM then the profit it will give will always give average profit. And if we talk about ITM, if you buy premium of ITM, then it will give more profit than ATM, OTM, like the farther the premium of ITM strike price is, more will be the chances of profit/loss. If we understand from an example, suppose Banknifty is Rs 48,000 then its strike price and premium prices will be as follows.
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ITM ATM OTM WHICH IS BETTERย ?
IN THE MONEY ,
AT THE MONEY,
OUT OF THE MONEY,
Let us understand this with an example:-
Suppose banknifty is currently running at Rs 48,000 then :-
What will be ATM ?
BANNKNIFTY is at 48,000, we assume its stricte price is 48,000 option premium, it will be called ATM i.e. AT THE MONEY
This will be the same for both CALL/CE and PUT/PE, only the price of their premium will be different.
What will be ITM or IN THE MONEY?
In the money will be different for both CE and PE options of Banknifty. For example, if Banknifty is running at Rs 48,000, its ATM is an option of Rs 48,000 and if we talk about ITM strike prices or options, then for CE, 47900, 47800, 47700, 47600 will come under ITM. And if we talk about PUT/PE, then the options of 48100, 48200, 48300, _ _ _ will come in the money.
What is called OTM or OUT OF THE MONEY ?
OTM will also be different for both CE and PE. Suppose Banknifty is currently running at 48,000 then out of the money strike prices or premium for Call/CE options will be 48100, 48200, 48300,_ _ _ All the premiums above 48,000 will come in OTM or out of the money.
And if the same thing happens for Put/PE options, the opposite will happen for CE/Call options. For example, if there is 48,000 Banknifty, then the premium with strike price of 48,000 will come in ATM whereas all the strike price premiums below 48,000 like 47900, 47800, 47700_ _ _ all these will come in OTM i.e. out of the money.
In simple words, what will ITM/ATM/OTM be for CE ?
Suppose 48000 is the current price of Banknifty, then its strike price will be called ATM and all the strike prices above 48000 will be called OTM.
Like 48100, 48200, 48300,
And all the strike prices below 48,000 strike price will be premium ITM like 47900, 47800, 47700,_ _ _ _
In simple words, what will be the ITM/ATM/OTM for PE/PUT ?
For example, the current price of Banknufty in the market is 48,000, then the strike price will be 48,000, then ATM will be 48100, 48200,โฆโฆ, ITM above 48000.
Those below 48,000 premium price will be 47900,47800,โฆโฆ, OTM.
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