Now that you are comfortable calculating “Profit/Loss at expiry” to buy options, I would like to show you how changing the strike of the option affects the overall value of it. The strike of an option will always be in one of three states: In-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM).
Since there are several news events for both the euro and the greenback on Monday, EUR/USD will be potentially more volatile. When buying options, increasing volatility in the future is good. So let’s evaluate whether you would want to buy your options at-the-money, in-the-money, or out-of-the-money (terms you will frequently hear when trading options).
• An option is at-the-money (ATM) when the strike rate equals the underlying market rate. For example, if EUR/USD is trading at 1.1200 and you buy a Call option with strike 1.1200 the option is ATM.
• An option is in-the-money (ITM) when the strike rate is better than the underlying market rate. For example, if EUR/USD is trading at 1.1200 and you buy a Call with strike 1.1100 the option would be considered ITM because 1.1100 is a better buy rate than 1.1200.
• An option is out-of-the-money (OTM) when the strike rate is worse than the underlying market rate. For example, if EUR/USD is trading at 1.1200 and you buy a Call with strike 1.1300 the option would be considered OTM because 1.1300 is a worse buy rate than 1.1200.
These states are known as an option’s ‘moneyness’.
When an option is in-the-money (ITM), it is more valuable, i.e. its premium is higher. Hence, ITM options are the most expensive to buy, whereas out-of-the-money (OTM) options are cheaper. Paying more for an option means you are risking more, however an ITM option has a higher probability of returning a profit. Buying an OTM option is a smaller risk, but the probability of profit is lower. In each trade, you enter a strike rate depending on your market outlook and risk appetite.
When you buy a Call option with a strike equal to the market rate, it is at-the-money (ATM). If the market rises, the option will become ITM since the buy price of the strike is cheaper than the market. But if the market falls, the option will become OTM. The diagram below demonstrates this concept.
In the ATM buy call option image above, the underlying EUR/USD rate was trading at 1.12252 and valued at 345.47 USD.
Setting an option with a strike of 0% means the strike will also be 1.12252.
In the OTM buy call option above, a strike price +2% above market has been selected. This means the trader is reserving a worse rate than what is currently available in the market and the following happens – the value of the option decreases to 54.50 USD.
In the ITM buy call option above, a strike price -2% below market has been selected. This means the trader is reserving a better rate than the market and the following happens – the value of the option increases to 1,190.11 USD.
Note: A Put option, with the same strike rate, will always be in a different state to the Call option unless the strike rate equals the market, then both the Put and Call will be at-the-money (ATM). The table below shows the different states of a Put and Call as the strike level in relation to market level changes.
Since there are several news events for both the euro and the greenback on Monday, EUR/USD will be potentially more volatile. When buying options, increasing volatility in the future is good. So let’s evaluate whether you would want to buy your options at-the-money, in-the-money, or out-of-the-money (terms you will frequently hear when trading options).
• An option is at-the-money (ATM) when the strike rate equals the underlying market rate. For example, if EUR/USD is trading at 1.1200 and you buy a Call option with strike 1.1200 the option is ATM.
• An option is in-the-money (ITM) when the strike rate is better than the underlying market rate. For example, if EUR/USD is trading at 1.1200 and you buy a Call with strike 1.1100 the option would be considered ITM because 1.1100 is a better buy rate than 1.1200.
• An option is out-of-the-money (OTM) when the strike rate is worse than the underlying market rate. For example, if EUR/USD is trading at 1.1200 and you buy a Call with strike 1.1300 the option would be considered OTM because 1.1300 is a worse buy rate than 1.1200.
These states are known as an option’s ‘moneyness’.
When an option is in-the-money (ITM), it is more valuable, i.e. its premium is higher. Hence, ITM options are the most expensive to buy, whereas out-of-the-money (OTM) options are cheaper. Paying more for an option means you are risking more, however an ITM option has a higher probability of returning a profit. Buying an OTM option is a smaller risk, but the probability of profit is lower. In each trade, you enter a strike rate depending on your market outlook and risk appetite.
Buying an at-the-money (ATM) Call option
When you buy a Call option with a strike equal to the market rate, it is at-the-money (ATM). If the market rises, the option will become ITM since the buy price of the strike is cheaper than the market. But if the market falls, the option will become OTM. The diagram below demonstrates this concept.
Example of buying Long Call option – ATM, OTM, ITM
The following three images depict EUR/USD buy call options ATM, OTM, and ITM.In the ATM buy call option image above, the underlying EUR/USD rate was trading at 1.12252 and valued at 345.47 USD.
Setting an option with a strike of 0% means the strike will also be 1.12252.
In the OTM buy call option above, a strike price +2% above market has been selected. This means the trader is reserving a worse rate than what is currently available in the market and the following happens – the value of the option decreases to 54.50 USD.
In the ITM buy call option above, a strike price -2% below market has been selected. This means the trader is reserving a better rate than the market and the following happens – the value of the option increases to 1,190.11 USD.
Note: A Put option, with the same strike rate, will always be in a different state to the Call option unless the strike rate equals the market, then both the Put and Call will be at-the-money (ATM). The table below shows the different states of a Put and Call as the strike level in relation to market level changes.
Editors’ Picks
EUR/USD struggles to extend advance above 1.1800
The EUR/USD pair posts a fresh weekly low near 1.1740 during the Asian trading session on Wednesday. The major currency pair is under pressure as the US Dollar edges higher despite Federal Open Market Committee minutes of the December policy meeting, released on Tuesday, showing that most policymakers stressed the need for further interest rate cuts.
GBP/USD trades flat above 1.3450 amid thin trading volume
The GBP/USD pair holds steady around 1.3465 during the early Asian trading hours on Wednesday. However, the Bank of England guided that monetary policy will remain on a gradual downward path, which might underpin the Cable against the US Dollar. Financial markets are expected to trade on thin volumes as traders prepare for the New Year holiday.
USD/JPY flatlines below 156.50 amid the year-end grind
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Editors’ Picks
AUD/USD keeps range near 0.6700 despite strong Chinese PMIs
AUD/USD is keeping its range near the 0.6700 handle for the third day in a row on Wednesday. The Australian Dollar remains unimpressed by the unexpected expansion in the Chinese business PMIs for December. The year-end trading lull dominates, leaving the pair gyrating in a tight band.
USD/JPY flatlines below 156.50 amid the year-end grind
USD/JPY remains caught in near-term congestion below 156.50 on the final trading day of 2025. The pair traders are battling headwinds on multiple fronts, with the Fed- BoJ monetary policy divergence to play out in 2026 amid looming Japanese forex intervention risks.
Gold attempts another run toward $4,400 on final day of 2025
Gold price makes another attempt toward $4,400 in Asian trading on Tuesday, keeping the recovery mode intact following Monday's over 4% correction. The bright metal seems to cheer upbeat Chinese NBS and RatingDog Manufacturing and Services PMI data for December.
Top Crypto Gainers: Canton, Four, Plasma rally secures double-digit gains
Canton, Four, and Plasma are the top-performing crypto assets over the last 24 hours with double-digit gains. The extended recovery in Canton is gaining traction while Four and Plasma target a decisive close above the 200-period Exponential Moving Average on the 4-hour chart.
Bitcoin Price Annual Forecast: BTC holds long-term bullish structure heading into 2026
Bitcoin (BTC) is wrapping up 2025 as one of its most eventful years, defined by unprecedented institutional participation, major regulatory developments, and extreme price volatility.
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