TO IDENTIFY OTM / ATM & ITM in CALL OPTION...
IN ABOVE PICTURE, YOU WILL FIND THAT MR. A IS CLIMBING UP TO REACH AT TOP OF THE HILL OF 6000 STEPS. THINK HERE THAT MR. A IS BULLISH ABOUT STOCK AND BUYING CALL OPTION.
NOW HE IS STANDING ON STEP NO. 2400
THEREFORE 2400 IS ATM ( AT THE MONEY )
THE DISTANCE WHICH HE COVERED FROM STEP 1 TO 2399 is ITM ( IN THE MONEY )
THE DISTANCE WHICH HE WANT TO COVER OR YET TO COVER ie ABOVE 2400 is OTM ( OUT OF THE MONEY )
TO IDENTIFY OTM / ATM & ITM in PUT OPTION...
IN ABOVE PICTURE, YOU WILL FIND THAT MR. B IS CLIMBING DOWN TO REACH AT BOTTOM OF THE HILL. THINK HERE THAT MR. B IS BEARISH ABOUT STOCK AND BUYING PUT OPTION.
NOW HE IS STANDING ON STEP NO. 3200
THEREFORE 3200 IS ATM ( AT THE MONEY )
THE DISTANCE WHICH HE COVERED FROM STEP 6000 TO 3201 is ITM ( IN THE MONEY )
THE DISTANCE WHICH HE WANT TO COVER OR YET TO COVER ie BELOW 3200 is OTM ( OUT OF THE MONEY )
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