Moneyness
Moneyness describes an option's strike price relative to the current underlying price.
✦ Key Insight
It helps explain intrinsic value, exercise relevance, and how option behavior changes across strikes.
✕ Common Misconceptions
Moneyness is not the same as profitability because the option premium also matters.
Detailed Explanation
In Practice
Dig Deeper
Strike Price
The strike price is the predetermined price at which an option can be exercised according to its contract terms.
Option Premium
Option premium is the price paid by an option buyer and received by an option seller for the contract.
In-the-Money (ITM)
An option is in the money when exercising it would have positive intrinsic value based on the underlying price and strike.
Out-of-the-Money (OTM)
An option is out of the money when exercising it would not have positive intrinsic value at the current underlying price.
At-the-Money (ATM)
An option is at the money when its strike price is approximately equal to the current underlying price.