Out-of-the-Money (OTM) Options: These options would lead to negative cash flow if exercised immediately. For call options, OTM means the strike price is higher than the current market price of the underlying asset. For put options, it’s when the strike price is lower than the market price.
In-the-Money (ITM) Options: These options would lead to positive cash flow if exercised immediately. For call options, ITM means the strike price is lower than the current market price of the underlying asset. For put options, it’s when the strike price is higher than the market price.
At-the-Money (ATM) Options: These options have a strike price equal to the underlying asset’s current market price. If exercised, they would neither generate profit nor loss (ignoring transaction costs).