Moneyness in options is a concept that describes the relationship between the strike price and the price of the underline security. In calls and puts there are three different modes of moneyness:

In the money (ITM)

In call options when the price of the underline security is higher than the strike price of a particular call then we say that this call is in the money (ITM). In other words it make sense to exercise it.

In puts when the price of the underline security is lower than the strike price of a particular put then we say that this put is in the money (ITM). In other words it make sense to exercise it.

Out of the money (OTM)

In call options when the price of the underline security is lower than the strike price of a particular call then we say that this call is out the money (OTM). In other words it doesn’t make sense to exercise it.

In puts when the price of the underline security is higher than the strike price of a particular put then we say that this put is out the money (OTM). In other words it doesn’t make sense to exercise it.

At the money (ATM)

In calls and puts when the price of the underline security almost equals the strike price.