If you’re retired and managing your own IRA or 401(k) through a self-directed retirement account, you may be looking for ways to protect your capital, generate income, or grow your savings more effectively. Stock options can help you achieve these goals, but understanding the basics is essential.
This guide explains three fundamental concepts that every options trader—especially retired investors—needs to know:
- In-the-Money (ITM)
- At-the-Money (ATM)
- Out-of-the-Money (OTM)
🟢 What is In-the-Money (ITM)?
An option is called in-the-money when it already has real profit built in.
- Call Option: ITM when the stock is above the strike price.
- Put Option: ITM when the stock is below the strike price.
✅ Real-World Example:
- You own a call option with a $50 strike.
- The stock is trading at $60.
- That call is $10 in the money.
📈 Why Retirees Like ITM Options:
They are more stable, less volatile, and have intrinsic value. ITM options are great for generating income with covered calls—a popular strategy in retirement accounts.
🟡 What is At-the-Money (ATM)?
An option is at-the-money when the stock price is equal or very close to the strike price.
🟠 Example:
- Stock is at $100
- Your option strike is $100
- This is ATM — neither in nor out of the money.
⚠️ Why ATM Options Matter:
They are often used in strategies where you’re expecting big price movement in either direction. However, they can lose value quickly if the stock doesn’t move, so they may not be the best for conservative IRA investors.
🔴 What is Out-of-the-Money (OTM)?
These options do not have any current value, but they are cheaper and often used in speculative trades.
- Call Option: OTM when the stock is below the strike price
- Put Option: OTM when the stock is above the strike price
🚫 Example:
- You buy a call option with a $50 strike
- The stock is only trading at $40
- That option is out of the money by $10
🧠 Caution for Retirees:
While OTM options are low-cost, they are also high-risk and can expire worthless. Not ideal for income-focused retirement accounts unless part of a specific strategy like a cash-secured put.
📊 Quick Summary Table
| Type | Description | Call Option | Put Option | Retirement Use |
| ITM | Has value now | Stock > Strike | Stock < Strike | ✅ Safer, good for income |
| ATM | Near current stock price | Stock ≈ Strike | Stock ≈ Strike | ⚠️ Neutral, needs movement |
| OTM | No current value | Stock < Strike | Stock > Strike | 🚫 Risky, speculative |
🧠 Strategy Tips for Self-Directed IRA Investors:
- Covered Calls (using ITM or ATM): Generate steady monthly income.
- Cash-Secured Puts (OTM): Buy stock at a discount—only if you’re OK owning it.
- Avoid Overleveraging: Options can be powerful, but conservative use is key in retirement.
🔚 Final Thoughts
Stock options don’t have to be scary—even for those who are retired and managing their own nest egg. With the right knowledge, strategies like in-the-money covered calls can help you generate monthly income while keeping your portfolio safer than many traditional investments.
As you learn, always focus on risk management, clear goals, and simple strategies that align with your retirement lifestyle.