A term used to describe a situation in an option contract in which it would be advantageous to exercise the contract.
A call option that gives an individual the right to buy 100 shares of stock for $14 per share prior to December 31, 2008, would be in-the-money if the market price for the stock was more than $14 per share.
The other party to the call option is obligated to sell at $14 no matter what the market price, and the holder could buy
at $14 and turn around and sell the stock at the higher market price.