It is important to have a basic understanding in the terminology associated with options trading.

In-the-money: A call option is said to be in-the-money if the strike price is lower than the market price of the underlying stock. However, a PUT option is said to be in-the-money if the strike price is higher than the market price of the underlying stock.When the strike price of the option is lower than the price of the underlying stock, the call option is in-the-money. Note that the more the option is in-the-money, the lower is the strike price, and the more expensive is the premium.

Out-of-the-money: A Call option is out-of-the-money if its strike price is higher than the market price of the underlying stock. A PUT option on the other hand, is out-of-the-money if its strike price is lower than the underlying stock's market price.When the strike price of the option is higher than the price of the underlying stock, the option is out-of-the-money. Note that the more the option is out-of-the-money, the higher is the strike price, and the less expensive is the premium.

At-the-money: An option with a strike price that is very close to the underlying stock's market price is said to be at-the-money. When the price of the underlying stock is the same as the strike price, the option is at-the-money. People will say it is at the money even if it is a few cents away.