What is In-the-Money/Out-of-the-Money?
Let's find out In-the-Money/Out-of-the-Money meaning, definition in crypto, what is In-the-Money/Out-of-the-Money, and all other detailed facts.
Options trading is one of the most commonly used tools in traditional investing in the stock market. It allows investors to bet on the price of a stock and, if the bets are correct, they profit from it. Many exchanges in the cryptocurrency world started using options trading as well. While cryptocurrency trading differs greatly from traditional stock market trading, several principles and trading tools are applicable to both markets.
In-the-money (ITM) and out-of-the-money (OTM) are two of the world's most prominent trading processes that indicate the type of position an investor takes regarding an asset's or cryptocurrency's present price. Options trading allows investors to speculate on an asset's future price and benefit if their forecast is true.
The ITM strategy is when an investor bets money on a price that has already been surpassed by the asset. When a trader wishes to hedge their funds against a position, he will utilize this sort of options trading. ITM options trading mechanism is beneficial because it carries time value and intrinsic value meaning that it’s a less risky investment because it witnesses smaller price fluctuations.
The OTM strategy is similar to the ITM strategy but the difference is that an investor stakes money on a price that the asset hasn't reached yet. This means that OTM investments only have time value without intrinsic value. For this reason, OTM investments mostly end up being cheaper than ITM investments. OTM options trading is usually chosen by investors that have a strong hunch that the asset’s price will go up in the future.
Options trading can be very profitable for crypto investors because of the highly volatile nature of cryptocurrency projects and large price fluctuations. Bitcoin (BTC) and Ethereum (ETH) are the two cryptocurrencies that are perfect for options trading because they are extremely volatile.