In the money (ITM) is a term used to refer to an option contract that has an intrinsic value with the current state of the market. Intrinsic value is the amount by which the option is in-the-money. Whether an option is ITM, out of the money (OTM), or at the money (ATM) depends on the market price at the time of evaluation and the strike price of the contract.

For calls, an option is ITM if its market price is above its strike price. The greater the difference between the market price and the strike price, the more in-the-money the option is and the higher its intrinsic value. Generally speaking, in-the-money call options have higher premiums than options that are not ITM.

For puts, an option is ITM when its market price is below its strike price. Options with greater ITM differential have higher intrinsic value than those with lower ITM differentials. The same is true for puts as it is for calls — ITM options tend to come with higher premiums than OTM and ATM options.

The fact that in the money options come with higher premiums makes them more desirable than ATM or OTM options. However, investors should account for the cost of the option when considering the potential profit from an ITM option. In-the-money options are great for investors who have a bullish view of the underlying asset, but higher premiums mean that the investor needs to make a greater return on their investment just to break even. As a result, investors should carefully consider which option pricing structure would be best for their current goals and objectives.