Now that you are comfortable determining the ‘moneyness’ of buy call options, I will introduce you to the power of buy put options and their “moneyness”.
AUD/USD has been in a steady downtrend over the past six months. This Thursday, the market has several volatile events for the Australian dollar and the U.S. dollar, such as Australian Employment Change, Australian Unemployment Rate, and U.S. Retail Sales. Those events are likely to impact the AUD/USD. Buying a Put option would allow you profit from a continuation of the pairs downtrend. Read “The Put Option” lesson for an introduction on buying Put options.
Next, you need to decide on the strike of the put option. Depending on the strike level, an option can be in one of three states:
• An option is at-the-money (ATM) when the strike rate equals the underlying market rate. For example, if AUD/USD is trading at 0.7700 and you buy a Put option with strike 0.7700, 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 AUD/USD is trading at 0.7700 and you buy a Put with strike 0.7800, the option would be considered ITM because 0.7800 is a better sell rate than 0.7700.
• An option is out-of-the-money (OTM) when the strike rate is worse than the underlying market rate. For example, if AUD/USD is trading at 0.7700 and you buy a Put with strike 0.7600, the option would be considered OTM because 0.7600 is a worse sell rate than 0.7700.
The table below shows the different states of a Put and Call of a strike level in relation to market level changes.
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).
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 the cheapest. 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) Put option
When you buy a Put option with a strike equal to the market rate, it is at-the-money (ATM). If the market subsequently rises, the option will be out-of-the-money (OTM) because the sell price of the strike is lower than the market. But if the market falls, the option will be in-the-money (ITM) as the strike is more attractive than market. The diagram below demonstrates this concept.
Example of buying Long Put option – ATM, OTM, ITM
The following three images depict AUD/USD buy Put options ATM, OTM, and ITM.
In the ATM buy Put option image above, the underlying AUD/USD market rate and the strike are the same at 0.77325 and the option costs 277.72 USD to buy
In the OTM buy Put option above, a strike price -2% below market has been selected. This means the trader is reserving a worse rate than what is currently available in the market and the cost to buy the option has decreased to 65.60 USD.
In the ITM buy call option above, a strike price +2% above market has been selected. This means the trader is reserving a better rate than the market and the cost to buy the option has increased to 840.29 USD.
The content provided is made available to you by ORE Tech Ltd for educational purposes only, and does not constitute any recommendation and/or proposal regarding the performance and/or avoidance of any transaction (whether financial or not), and does not provide or intend to provide any basis of assumption and/or reliance to any such transaction.
Editors’ Picks
EUR/USD moves sideways below 1.1800 on Christmas Eve
EUR/USD struggles to find direction and trades in a narrow channel below 1.1800 after posting gains for two consecutive days. Bond and stock markets in the US will open at the usual time and close early on Christmas Eve, allowing the trading action to remain subdued.
GBP/USD keeps range around 1.3500 amid quiet markets
GBP/USD keeps its range trade intact at around 1.3500 on Wednesday. The Pound Sterling holds the upper hand over the US Dollar amid pre-Christmas light trading as traders move to the sidelines heading into the holiday season.
USD/JPY corrects further to near 155.80, gives up entire BoJ policy-led gains
USD/JPY surrenders its entire gains made on the BoJ policy announcement day, and retraces to near 155.80. Investors are in vogue over the outlook of the BoJ’s monetary tightening campaign. The Fed is expected to cut interest rates by at least 50 bps next year.
Editors’ Picks
EUR/USD Price Annual Forecast: Growth to displace central banks from the limelight in 2026 Premium
What a year! Donald Trump’s return to the United States (US) Presidency was no doubt what led financial markets throughout 2025. His not-always-unexpected or surprising decisions shaped investors’ sentiment, or better said, unprecedented uncertainty.
Gold Price Annual Forecast: 2026 could see new record-highs but a 2025-like rally is unlikely Premium
Gold hit multiple new record highs throughout 2025. Trade-war fears, geopolitical instability and monetary easing in major economies were the main drivers behind Gold’s rally.
GBP/USD Price Annual Forecast: Will 2026 be another bullish year for Pound Sterling? Premium
Having wrapped up 2025 on a positive note, the Pound Sterling (GBP) eyes another meaningful and upbeat year against the US Dollar (USD) at the start of 2026.
US Dollar Price Annual Forecast: 2026 set to be a year of transition, not capitulation Premium
The US Dollar (USD) enters the new year at a crossroads. After several years of sustained strength driven by US growth outperformance, aggressive Federal Reserve (Fed) tightening, and recurrent episodes of global risk aversion, the conditions that underpinned broad-based USD appreciation are beginning to erode, but not collapse.
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.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.