An ITM option is an option that is having a positive intrinsic value. This could be applicable to call options and put options. As we all know, a call option is a right to buy a stock or an index while a put option is a right to sell. Let us first understand the concept of an ITM option from the point of view of a call option.

Let us assume that you have purchased a Nifty 10,000 Call Option expiring next month at a price of Rs.90. Since this is a call option, this is a right to buy the index at a strike price of Rs.10,000. If the value of the Nifty moves to 10,070 then it will be an ITM option as it has a positive intrinsic value of Rs.70 (10,070-10,000). Remember, you have bought the call option at Rs.91, so you are still losing Rs.21 but that is because you have also paid for time value. The call option will be classified as ITM if the Nifty is above the strike price and therefore has a positive intrinsic value. If the Nifty is at 10,000 then your call will be at the money (ATM) and if the Nifty is below 10,000, then the call option will be out of the money (OTM). The concept of ITM in put option is the exact reverse that of a call option. Since put is an option to sell, it will be ITM if the market price is below the strike price.