ITM (In The Money) describes an option that has intrinsic value and would be profitable to exercise immediately. For call options, ITM means the underlying asset price is above the strike price, while for put options, ITM means the underlying price is below the strike price. ITM options have higher premiums due to their intrinsic value component.

ITM options are more sensitive to underlying price movements (higher delta) and have lower time decay compared to out-of-the-money options. As expiration approaches, ITM options are more likely to be exercised, requiring position management consideration. Understanding moneyness helps option traders select appropriate strategies and manage risk exposure.

Real-world example: A call option with a $50 strike price is ITM when the stock trades at $55, providing $5 of intrinsic value plus additional time value, making it more expensive than equivalent out-of-the-money options.