Moneyness in Options Trading: ITM, ATM & OTM Explained for Indian F&O Traders

If you trade Nifty, Bank Nifty or stock options, there is one factor that controls your premium, your risk, your probability of profit and even your emotions without you realising it.

That factor is moneyness.

In Indian F&O markets where weekly expiries, high participation and fast premium decay dominate, understanding moneyness is not optional. It directly shapes how traders choose strikes, structure spreads, hedge risk and manage probability.

This guide breaks down moneyness in the most practical way with real examples, premium logic, Greeks behaviour and strategy selection so you stop guessing strikes and start selecting them with structure.

What Is Moneyness & Why It Matters in Options Trading

Moneyness describes the relationship between an option’s strike price and the current market price (spot price) of the underlying asset.

In simple words, it tells you how far your chosen strike is from the current market level and if that position is profitable or not.

But this is not just a classification, it directly affects how your option behaves, how fast it decays and how likely it is to become profitable.

Every option premium is made of two parts:

• Intrinsic Value – the real value already built into your option
• Time Value – the extra premium you are paying for the possibility that price may move further in your favour before expiry

Moneyness decides how much of your premium is real value and how much is pure expectation.

Why This Matters Practically

Let’s say Nifty is trading at 25,500.

• If you buy a 25,000 Call, your option is already ITM and carries 500 points of intrinsic value.
• If you buy a 26,000 Call, your option is OTM and carries zero intrinsic value you are only paying for a future price move.

Both trades can be “bullish”.

But their risk, probability and decay behaviour are completely different.

This is why moneyness quietly decides:

• how fast your premium melts
• how sensitive your option is to price movement
• and how realistic your profit expectation actually is

How Traders Use Moneyness

Moneyness helps you decide:

• whether to buy a cheaper but low-probability option
• or a slightly expensive but more reliable option
• whether your trade should focus on probability or on percentage returns
• and which strike makes sense for your strategy

Two traders can take the same Nifty view but the one who selects the right moneyness zone ends up with a far better risk-reward structure.

Once you understand moneyness, you stop randomly picking strikes and start structuring your trades with logic, probability and control.

ITM, ATM & OTM Explained — The Core of Moneyness

Every option strike on the NSE option chain falls into one of three zones based on where it stands relative to the spot price:

• In-The-Money (ITM)
• At-The-Money (ATM)
• Out-Of-The-Money (OTM)

Let’s understand each for both calls and puts exactly how Indian traders use them.

In-The-Money (ITM)

An option is called In-The-Money when it is already profitable at the current market price, meaning, if expiry happened right now, this option would settle with a positive value.

In simple terms, real usable value means the option already contains intrinsic profit built into it, not just expectation of a future move.

Call Option is ITM when:
Spot Price > Strike Price

This is because the market price is already above the strike level, which means the call option already holds intrinsic profit and would settle with a positive value if expiry happened at that moment.

Put Option is ITM when:
Spot Price < Strike Price

This is because the market price is already below the strike level, which means the put option already holds intrinsic profit and would settle with a positive value if expiry happened at that moment.

Example:
Nifty spot = 25,500

• 25,000 CE → ITM Call
• 26,000 PE → ITM Put

These options contain intrinsic value real value that does not depend on time or volatility.

Example (ITM Call Option)

Suppose Nifty is trading at 25,500.
The 25,000 Call Option (25000 CE) is In-The-Money and is currently trading at ₹200.

By buying this option, you are basically saying:
“I believe Nifty will remain above 25,000 and continue to move higher.”

Your breakeven for this trade becomes:
25,000 + 200 = 25,200

So:

• If Nifty moves above 25,200, your trade turns profitable
• As Nifty keeps rising, the value of your call option also rises, allowing you to book profits
• If Nifty falls below 25,000, your maximum loss remains limited to the premium paid; ₹200

Because this option already has intrinsic value, its premium is more stable and does not melt as fast as far OTM options.

At-The-Money (ATM)

An option is At-The-Money when its strike price is closest to the current market price.
ATM options do not have intrinsic value; their premium is almost completely made of time value.

ATM when:
Strike ≈ Spot

Example:
Nifty spot = 25,500

• 25,500 CE → ATM
• 25,500 PE → ATM

ATM strikes are the most active, have the highest liquidity, and show the fastest reaction to price movement.

Example (ATM Call Option)

Nifty is still trading at 25,500.
Now look at the 25,500 Call Option (25500 CE) this is the At-The-Money strike.

Suppose this option is trading at ₹120.

Here, you are paying purely for future movement, because the option does not have any intrinsic value yet.

• If Nifty moves quickly above 25,500, this option reacts fast and gives good intraday profits
• If Nifty stays sideways, this option loses value quickly due to time decay

ATM options are the most active strikes and are preferred for short-term momentum trades.

Out-Of-The-Money (OTM)

An option is Out-Of-The-Money when it has no intrinsic value and needs a future price move to become profitable.

Call Option is OTM when:
Strike Price > Spot Price

This is because the market has not yet reached the strike level, so the call option currently has no intrinsic value and needs a future upward move to become profitable.

Put Option is OTM when:
Strike Price < Spot Price

This is because the market is currently trading above the strike level, so the put option has no intrinsic value and requires a future downward move to become profitable.

Example :
Nifty spot = 25,500

• 26,000 CE → OTM Call
• 25,000 PE → OTM Put

These options are cheaper but come with high decay and low probability of profit.

Example (OTM Put Option)

Nifty is still at 25,500.
The 25,000 Put Option (25000 PE) is now Out-Of-The-Money and is trading at ₹60.

By buying this option, you are saying:
“I believe Nifty will fall below 25,000 before expiry.”

• If Nifty does not fall below 25,000, the option will expire worthless
• If Nifty falls sharply, the option can give high percentage returns

OTM options are cheaper but come with faster decay and lower probability of profit.

Quick Reference Table

Moneyness	Call Rule	Put Rule	Intrinsic Value
ITM	Spot > Strike	Spot < Strike	Yes
ATM	Spot ≈ Strike	Spot ≈ Strike	No
OTM	Strike > Spot	Strike < Spot	No

How Moneyness Is Calculated

Moneyness is not a vague concept, it is mathematically measurable.

Pro traders do not just say “this is ITM or OTM”.
They measure how deep it is ITM or OTM because depth directly affects probability, decay and premium behaviour.

Call Option Moneyness Formula

Moneyness (Call)=Spot Price−Strike Price

Put Option Moneyness Formula

Moneyness (Put)=Strike Price−Spot Price

How to Read the Result

Result	Meaning
Positive value	Option is ITM
Zero (≈0)	Option is ATM
Negative value	Option is OTM

Practical Example

Nifty spot = 25,500

Strike	Call Moneyness	Put Moneyness	Zone
25,000	25,500 – 25,000 = +500	–	Deep ITM Call
25,500	0	0	ATM
26,000	25,500 – 26,000 = –500	–	OTM Call

This number tells you how far your strike is from profitability.
The farther the negative number the more price movement required the lower your probability of profit.

Why Professionals Track “Depth of Moneyness”

Two OTM options are not equally risky.

Assume Nifty spot is at 25,500.

• 26,000 CE (–500)
• 27,000 CE (–1,500)

Both are Out-Of-The-Money, but the second option is much farther from the current market price. This means it needs a significantly larger move to become profitable, has lower probability, and decays much faster than the 26,000 CE.

Depth decides:

• strike selection
• premium sensitivity
• strategy structure
• hedge efficiency

Once you start reading moneyness numerically, your trading becomes probability-driven instead of hope-driven.

How Moneyness Appears on the Sahi Option Chain

When you open the Nifty or Bank Nifty option chain, you are not just looking at a list of strikes, you are looking at a moneyness ladder.

Every strike above, below and at the spot price represents a different probability and risk profile.

Let’s understand this using a realistic Nifty structure.

Assume:
Nifty Spot = 25,500

Strike	CE Zone	Why	Typical Behaviour
25,000	ITM	Strike below spot	Moves almost like Nifty, expensive, low decay
25,500	ATM	Closest to spot	Highest liquidity, fastest reaction
26,000	OTM	Strike above spot	Cheap, fast decay, high speculation
27,000	Deep OTM	Far above spot	Deep speculative premiums

On the put side, the ladder simply flips:

Strike	PE Zone
26,000	ITM
25,500	ATM
25,000	OTM
24,000	Deep OTM

How Moneyness Affects Option Greeks (Delta, Gamma, Theta & Vega)

Every option Greek behaves differently depending on whether the strike is ITM, ATM or OTM. This is why professionals choose strikes based on moneyness not gut feeling.

Delta – How Fast Your Option Moves

Moneyness	Delta Behaviour
Deep ITM	Near 1.0 / –1.0 → moves almost like the index
ATM	Around 0.45–0.55→ reacts fastest to short-term price changes
OTM	Very low (slow reaction)

Meaning:
ITM gives you higher probability but slower percentage gains.
OTM gives you explosive percentage moves but only if price actually reaches your strike.

Gamma – Speed of Delta Change

Gamma is highest at ATM.

This is why:
ATM options show the fastest intraday price movements, which is why scalpers prefer trading ATM strikes. Breakouts also react quickest at ATM levels, making these strikes the most responsive zone on the option chain for short-term momentum trading.

OTM has weak gamma and deep ITM has flat gamma.

Theta – Time Decay (The Silent Killer)

Moneyness	Theta Impact
ITM	Slow decay
ATM	Fast decay
OTM	Fastest decay (near expiry)

This is why OTM premiums collapse brutally near expiry.

Vega – Volatility Sensitivity

Moneyness	Vega
ATM	Highest sensitivity to volatility
ITM	Moderate
OTM	Low

ATM premiums jump the most during news, expiry spikes and volatility surges.

FAQs

Is ATM always exactly the same strike as spot?
No. ATM is the closest available strike to the spot price.

Can moneyness change during the day?
Yes. As the spot moves, strikes shift between ITM, ATM and OTM continuously.

Why do OTM options decay faster?
Because their entire premium is only time value once probability drops, the premium collapses.

Which moneyness is safest for beginners?
ITM because it offers higher probability and slower decay.

Why does open interest concentrate around ATM and near-OTM strikes?
Because ATM and near-OTM options offer the best balance between liquidity, price movement and time-decay efficiency. Directional traders prefer ATM for faster price reaction, while professional sellers use near-OTM strikes to capture rapid time decay. This naturally leads to the highest volume and open interest clustering around these zones.

Why are ITM options expensive while OTM options look cheap?
ITM options are expensive because they already contain intrinsic value, meaning they are already profitable at current market prices. OTM options look cheaper because they contain only time value and need a future price move to become profitable making them lower probability trades despite their lower premiums.

Why do most retail losses happen in OTM options?
Because OTM options have the lowest probability of finishing profitable and decay the fastest near expiry. While they appear cheap, they are statistically more likely to expire worthless. Professional traders therefore use OTM strikes mainly within structured strategies rather than as standalone directional bets.