In, at and out of the money
A call is in the money when the stock is above the strike, and a put when the stock is below it. Out of the money is the other side. At the money is the zone around the strike closest to the current price, which on a real chain is almost never exactly the strike. For a seller the three zones mean three different trades.
The vocabulary takes ten seconds. Living on the wrong side of it takes a quarter.
The three zones, from both sides
DKNG at $38.40.
| Strike | Call is | Call price | Put is | Put price |
|---|---|---|---|---|
| $34 | in the money | $5.22 | out of the money | $0.64 |
| $36 | in the money | $3.67 | out of the money | $1.08 |
| $38 | in the money by $0.40 | $2.36 | out of the money by $0.40 | $1.76 |
| $39 | out of the money | $1.83 | in the money by $0.60 | $2.23 |
| $42 | out of the money | $0.73 | in the money | $4.11 |
| $44 | out of the money | $0.35 | in the money | $5.72 |
Every strike is in the money on one side and out on the other. There is no strike where both are in and none where both are out. That symmetry is the thing to hold onto, because the labels flip depending on which contract you are looking at and the chain does not warn you.
At the money is a zone, not a strike
Nothing on this chain is exactly at the money. DKNG is at $38.40 and the strikes are whole dollars, so the $38 call is in the money by 40 cents and the $39 call is out by 60. The nearest strike is $38 and people will call it the at-the-money strike, which is a useful shorthand and not a fact.
It matters because time value peaks at the money and so does gamma. The $38 call carries $1.96 of extrinsic value, the most on the chain, and it is also the strike whose delta will move fastest if DKNG twitches. Both facts are about the zone, not about the round number.
What each zone means when you are short
Out of the money. Where premium sellers live. The whole credit is time value, the odds are in your favour, and the trade works if nothing much happens. The $42 call: $73, 0.268 delta, and DKNG has to rally 9.4 percent to reach it. This is the default.
At the money. Maximum credit, maximum extrinsic value, and roughly a coin flip. The $38 call pays $236, which is three times the $42. It also has a 51.9 percent chance of finishing in the money, so on a covered call you are effectively agreeing to sell your shares about half the time. Some people run this deliberately for the income. It is not passive and it is not what most people mean when they say covered call.
In the money. The strike is already breached. Sell a $36 covered call on a $38.40 stock and you have collected $367, of which $240 is money you are certain to hand back and $127 is your actual fee, in exchange for agreeing to sell at $36. The credit looks enormous. The trade is a disguised sale of the shares at a discount, with a fee. There are situations where that is exactly what you want, and none of them start with "the premium looked good".
The zone tells you what happens at expiry
This is the only part that is mechanical.
- Finishes out of the money. Expires worthless. Nothing happens, you keep the credit, and you can write another one on Monday.
- Finishes in the money by a penny or more. OCC / Options Industry Council, Options Exercise FAQ sets automatic exercise at a cent. Your short call delivers the shares. Your short put buys them.
- Finishes exactly at the strike. Neither, in theory. In practice this is pin risk, and it is genuinely unpleasant, because a holder can still submit an exercise instruction after the close and you find out on Saturday.
Note the direction on that middle line, because it is the thing people reverse under pressure. A short call in the money sells your shares. A short put in the money buys them. Assignment on a put is a purchase, and it puts stock into an account that was holding cash. The assignment page says this three times for the same reason.
Moneyness is not probability
Out of the money does not mean safe. The $42 call is out of the money by $3.60 and has a 22.9 percent chance of finishing in it, which is not far off one in four. Worse, it has a 46.3 percent chance of trading through $42 at some point before September 19, which is the number that actually determines how the position feels while you hold it.
That gap between "finishes there" and "goes there" is the most useful thing on this site for people new to selling, because roughly half the trades that end fine will scare you first.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
What does in the money mean for a seller?
That the strike has been breached against you. A short call is in the money when the stock is above the strike, and it will deliver your shares at expiry. A short put is in the money below the strike and will buy shares.
Is there an exactly at-the-money strike?
Almost never. With the stock at $38.40 and dollar strikes, the $38 call is in the money by 40 cents and the $39 is out by 60. At the money is a zone around the current price, and the nearest strike gets the label by convention.
Why does an in-the-money covered call pay so much premium?
Because most of it is not premium. A $36 call on a $38.40 stock is $3.67, of which $2.40 is intrinsic value you will hand back at expiry. The actual fee is $1.27, and you have agreed to sell your shares at $36.
Does out of the money mean the trade is safe?
No. The $42 call on the worked chain is $3.60 out of the money and still has a 22.9 percent chance of finishing in it, plus a 46.3 percent chance of trading through the strike at some point first.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Options basics for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.