In-the-Money / Out-of-the-Money
In the world of cryptocurrency trading, “in the money” (ITM) and “out of the money” (OTM) are terms used to describe how an option is valued. The value of a call option or put option is determined by its strike price relative to the current market price of the underlying asset. When a call option’s strike price is below the current market price of its underlying asset, it is said to be in the money; when a put option’s strike price is above that same current market price, it too can be said to be in the money. Conversely, when a call or put options’ strike prices are greater than or less than their respective underlying assets’ market prices, they can respectively be said to be out of the money.
For example: If you buy an Ethereum Call Option with Strike Price $100 and Market Price for Ethereum stands at $110 then that means your Call Option is In The Money because you have already made profit from this trade since your Strike Price was lower than Market Price. On other hand if you had bought Put Option with Strike Price $90 then that would mean your Put Option will Out Of The Money as Market Prices for Ethereum stand at $110 which higher than your StrikePrice ($90).
The degree to which an ITM/OTM position may move into profitability can depend on several factors such as volatility in market conditions and time decay associated with expiry date closing nears. An OTM position has higher probability but lower payout while ITM positions carry high rewards but low probability; therefore traders must balance these risks and rewards before placing any trades depending upon their risk appetite levels along with market condition analysis .
It should also be noted that there are various types of derivatives available related to cryptocurrencies such as futures contracts , forward contacts etc., which offer different payoff profiles compared ITMs & OTMs discussed here . Thus traders should carefully research each type derivative product before making any decision about them .
