ITM vs ATM vs OTM Explained (Options in Plain English)

Why It Matters

Understanding ITM/ATM/OTM clarifies the trade-off between cost, likelihood of payoff, and required market movement, helping traders choose options aligned with their probability and risk preferences. This distinction is fundamental to avoiding common beginner mistakes and managing option strategies more effectively.

Summary

The video explains the difference between in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM) options in plain language, using a concert-ticket analogy and an example with Netflix option strikes. ITM options already have intrinsic value because they would produce a favorable trade immediately; ATM options sit on the cusp and are sensitive to small price moves; OTM options have no intrinsic value and require the underlying to move before they matter. The presenter warns that buying the cheapest options often equates to buying “hope” rather than value and urges traders to assess whether an option already has value or simply needs a future move.

Original Description

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We break down complex strategies into simple, repeatable systems.

Most beginners pick options based on what looks cheap… without realizing they’re choosing something that might never matter.

In this lesson of Options in Plain English, we break down in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM) in plain English—so you can stop buying “cheap” options that are really just hope, and start choosing contracts with structure.

In plain English

In-the-money (ITM) = the option already has value right now

At-the-money (ATM) = it’s right on the edge (closest to the current price)

Out-of-the-money (OTM) = it needs a move before it matters

Simple rule:

If you could use the option right now and get a better price than the market… it’s in-the-money.

What you’ll learn in this lesson

The simplest way to understand ITM/ATM/OTM (without jargon)

Why the cheapest option is often the worst choice for beginners

How ITM/ATM/OTM works for calls

How the exact same idea works for puts (just reversed)

A real options chain walkthrough using Netflix to make it obvious

The question to ask every time

Instead of asking: “What’s cheapest?”

Ask: “Does this already have value… or does it need a move?”

That’s Options in Plain English.

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This video is for educational purposes only and is not a recommendation for buying/selling any security. Options trading is risky, so please read our full risk disclosure here: https://optionalpha.com/legal/risk-disclosure-agreement