ITM

ITM, or “in the money,” describes an option that currently has intrinsic value. In energy markets, ITM options are often used as substitutes for futures positions with defined downside risk.

A call option is ITM when the underlying price exceeds the strike price. A put option is ITM when the underlying price is below the strike. The deeper an option is ITM, the more closely it behaves like the underlying futures contract.

Energy traders use ITM options to manage exposure while limiting risk. Because ITM options cost more upfront, they require higher premium outlay but provide immediate economic exposure.

Example: a jet fuel consumer expecting rising prices may buy deep ITM call options instead of futures to cap downside risk. As expiration nears, ITM options increasingly reflect intrinsic value, making timing and strike selection critical in energy risk management.