Monitoring an open option contract determines a successful trade from a failed one. Once an option order is initiated, the participant can't just sit back and relax due to the fact that the stock that it is based on fluctuates all the time. Since options move in conjuction with the stock market, it is very important to closely monitor an open contract to see whether you are breaking even, losing money or being profitable.
At the money
When the price of the underlying stock is the same as the strike price stated on the option, it is called at the money. Also, if the stock price is a few cents away from the srike price, it is also at the money.
In the money
In the money means that the strike price is inside the current market price of the underlying stock. An option is profitable if it is in the money or deep in the money. If the underlying stock is trading at $20 a share, a $15 strike price is in the money for a call option. This is profitable because if the option is exercised, the trader can buy the stock at $15 and sell it at the current market price of $20. For put options, if the underlying stock is currently trading at $20 a share, a $25 strike price is in the money. This means the trader can exercise a put option at $25 and buy it back at the current market price of $20 profiting $5 in the process.
Out of the money
Out of the money simply means that the strike price is outside the current market price of the underlying stock. Exercising options if it is out of the money delivers realised loses. For a call option, if the price of the underlying stock is at $20 a share, $25 is out of the money. If the call option is exercised, the trader buys the stock at $25 which is completely illogical. For a put option, a strike price of $15 if the underlying stock is trading at $20 a share is out of the money and unprofitable. This means, the buyer of the put can exercise it with a short position starting at $15 while the stock is trading at $20.