November 02, 2023
4 mins read
An ITM Call Option, which stands for "In The Money Call Option," is a type of derivative where the strike price is lower than the current market value of the asset. This means that the option already has inherent value, which makes it a good pick for people who think that asset prices will keep going up.
The holder of the ITM Call Option can take advantage of this good difference as the price of the asset goes up. ITM Call Options give you a more direct way to benefit from price increases than out-of-the-money contracts, and they are frequently less volatile.
A call option that is in the money (ITM) has a strike price that is lower than the current market price of the asset it is based on. This signifies that the option has intrinsic value, which means that the holder can buy the asset for a price that is better than the market rate.
ITM options give investors an edge because their strike price is better than the asset's market price. These options have benefits, such as being valuable on their own and being less likely to get worse over time.
But they do have some problems. Knowing both the pros and cons of something makes it easier to figure out how it fits into different trading plans and financial goals.
When adding In The Money call options to their trading plans, investors should think about the different risks and benefits they offer.
An ITM call option is nice because it has built-in value. These contracts have value from the get-go because the difference in price between the contract strike price and market price is with you. This is not the case for speculative options.
These options also allow you to potentially profit if the asset price goes up without having to own the asset. ITM Call Options are a savvy way to play asset movements since the value increases as the asset's price increases.
In-the-money options are less affected by time decay than out-of-the-money options. The value stays more stable, especially as the expiration date gets closer. This makes it easier to predict in markets that are often changing.
Options that are "in the money" usually cost more to buy. Investors need to put more money down at first, which could be a problem for people who don't have a lot of money.
These contracts are only good till they run out. If the underlying asset doesn't do well throughout this time, the option might not work out well.
If asset values decline, the intrinsic value of the ITM Call Option can decline rapidly meaning that you could still lose money even if the option was profitable.
Cash used to buy these options could be used for other investments. When making this trade-off, think about your portfolio's holistic viewpoint.
If you use borrowed money to buy the ITM Call Option, you may have to pay interest or margin costs. These extra costs can make the business less profitable overall.
Think about a stock that is now worth ₹1,500. If a trader has a call option with a strike price of ₹1,400, the option is in-the-money since the holder can buy the stock for ₹1,400 instead of the market price of ₹1,500. In this situation, the option's intrinsic value would be ₹100 (1,500 - 1,400), not including any premium paid.
In the event that the stock price rises to ₹1,600, the ITM call option will give you an opportunity to profit because the strike price will remain at ₹1,400, as the market price continues to rise... This difference between the strike price and the market price means more potential profit for the option holder.
If you have an option on a trading account and it expires in-the-money, it will usually be exercised automatically. For a call option, the holder buys the underlying asset at the strike price. For a put option, the holder sells it. The profit or loss relies on how much the market value is at expiration compared to the strike price.
For example, if an ITM call option has a strike price of ₹1,400 and the stock closes at ₹1,550 on the day the option expires, the holder can buy the shares at ₹1,400 and either keep it or sell it at the market price. If the option is not used, it loses its intrinsic value, which has a financial effect.
If an investor assumes that the price of the underlying asset will substantially or moderately rise, it is likely that the investor may choose to use ITM call options. ITM options may also be beneficial in hedging strategies involving an attempt to mitigate loss while still allowing for the potential market gains. ITM call options have intrinsic value so traders who want to minimize their risk and wait for the opportunity to be profitable typically choose ITM.
Investors may consider using ITM call options when they expect a moderate or strong upward movement in the underlying asset’s price. ITM options can also be useful in hedging strategies to limit downside risks while maintaining exposure to potential gains. Due to their intrinsic value, ITM call options are commonly preferred by traders who aim for lower risk and a higher probability of profit.
ITM options are versatile financial instruments that offer various advantages to investors. They are best suited for those with a bullish outlook on an asset, seeking to benefit from price appreciation or employing risk management strategies. ITM calls can be valuable for long-term investments, generating income, or diversifying portfolios.
Share this article: 
No Data Found
ITM call options are options contracts where the strike price is lower than the current market price of the underlying asset, giving them intrinsic value.
Exercising an ITM call option before expiration results in acquiring the underlying asset at the strike price, potentially securing a favourable market position.
ITM call options require an upfront premium, and exercising them involves purchasing the underlying asset, which may require substantial capital.
The price of an ITM option is based on intrinsic value and time value, influenced by market conditions, volatility, and interest rates.
Yes, ITM call options have a positive intrinsic value, calculated as the difference between the market price and the strike price.
ITM options are typically exercised automatically, while OTM and at-the-money (ATM) options expire worthless unless sold before expiration.
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes. The securities are quoted as an example and not as a recommendation. Past performance is not necessarily a guide to future performance.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
Please Enter Mobile Number
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
|
