What is ITM, ATM and OTM?

Terminology

ITM stands for In The Money, ATM stands for At The Money and OTM stands for Out of The Money. These references are indicators of whether or not the option has reached the strike price (ATM), still needs to reach the strike price (OTM), or has already passed the strike price (ITM).

Whether to buy an ITM, ATM, or OTM option is a decision you have to make. An ITM option acts the most like a cryptocurrency position, being affected less by time and changes in volatility, and more by the cryptocurrency price moving up and down. An ATM option is the most sensitive to changes in the cryptocurrency price and volatility, and time passing. An OTM option requires a very large rise in the price of the cryptocurrency to be profitable for the option buyer.

ITM

An ITM option acts the most like a cryptocurrency position. Depending on how deeply it is ITM, it will act more and more like cryptocurrency. It will be affected less by time and changes in volatility, and more by the cryptocurrency price moving up and down. An ITM call may require a smaller rise in the cryptocurrency price to be profitable, but its percentage gains won't be as great as those of an ATM or OTM call. An example of an ITM CALL option would be where you buy a WBTC $50,000 strike price CALL option, and the current market price for WBTC is $60,000. An example of an OTM PUT option would be where you buy a WBTC $50,000 strike price PUT option, and the current market price for WBTC is $30,000.

ATM

An ATM option has the greatest uncertainty. It is the most sensitive to changes in the cryptocurrency price and volatility, and time passing. This can be good or bad. An example of an ATM CALL option would be where you buy a WBTC $50,000 strike price CALL option, and the current market price for WBTC is $50,000. An example of an ATM PUT option would be where you buy a WBTC $50,000 strike price PUT option, and the current market price for WBTC is $50,000

OTM

An OTM requires a very large rise in the price of the cryptocurrency to be profitable. If a large enough move in the underlying cryptocurrency occurs, an OTM call can deliver a much higher percentage profit than an ITM or ATM call. If the cryptocurrency price falls dramatically, the loss on the OTM call will be smaller than on an ATM or ITM call. However, a big move in the cryptocurrency price is less likely than a smaller move, and OTM options will expire worthless if the move in the cryptocurrency isn't big enough. An example of an OTM CALL option would be where you buy a WBTC $50,000 strike price CALL option, and the current market price for WBTC is $40,000. An example of an OTM PUT option would be where you buy a WBTC $50,000 strike price PUT option, and the current market price for WBTC is $70,000

NOTE: This is a living document that will continue to be updated as Siren evolves. To contribute, please visit Siren on GitHub. Specific questions may be answered and technical guidance may also be provided from time to time in the Siren Discord to those who are interested in building on top of the protocol.