In-the-money and out-of-the-money are options trading mechanisms that allow investors to benefit from additional tools to work with the market.
In traditional investing on the stock market, options trading is one of the most often used tools that allow traders to bet on positions relating to the price of a stock. With the rise of cryptocurrencies, many exchanges have started options trading for tokens as well.
In-the-money (ITM) and out-of-the-money (OTM) are terms used to describe the type of position a trader takes in terms of the current price of an asset or cryptocurrency. Options trading allows investors to bet on the future price of an asset and consequently take profit if their prediction was correct.
The ITM options trading mechanism is used when an investor bets money on a price that the asset has already surpassed. This type of options trading is usually used when a trader wants to hedge their funds against a position. One of the key benefits of ITM option trades is that they carry both time value and intrinsic value. This means that ITM options usually witness smaller price fluctuations, making them less risky investments. There are several trading tools that allow investors to place ITM options like puts and calls.
OTM option trades are relatively similar to ITM ones; however, the investor bets on a price that the asset or token has not yet reached. In this sense, OTM investments only have a time value to them, as the asset has not yet reached the price the investor places an option on. Because of the lack of intrinsic value, OTM options are usually cheaper than ITM options. OTM options are generally a preferred choice for investors who have strong reason to believe that an asset’s price will increase in the future.
Options trading is becoming an increasingly sought-after opportunity for cryptocurrency traders. Because of the highly volatile nature of crypto projects and the large fluctuations in price, options trading can be extremely profitable. Cryptocurrencies like Bitcoin and Ethereum go through significant volatility, which makes them a perfect asset for options trading.
While cryptocurrency trading is significantly different from trading on the traditional stock market, some principles and trading tools apply to both markets. ITM and OTM are two of the most important mechanisms in the trading world, and this is why they have also been introduced in cryptocurrency trading.