Skip to main content

Moneyness

In short

Relationship between strike price and current stock price

Moneyness tells you how far the strike price is from the current stock price. At-the-money (ATM) means strike ≈ current price. In-the-money (ITM) means the option has intrinsic value. Out-of-the-money (OTM) means it doesn't yet.

Moneyness describes the intrinsic value status of an option. ITM options have intrinsic value and lower time value percentage. OTM options consist entirely of time value. Moneyness affects delta, gamma, and bid-ask spreads.

Formula

Moneyness = Underlying Price ÷ Strike Price (>1 = ITM call, <1 = OTM call)

Related concepts

  • ITM / ATM / OTM — ITM call: stock is already above the strike — has real value now. ATM: stock is right at the strike. OTM: stock hasn't reached the strike yet — you're betting it will. OTM options are cheaper but need a bigger move to profit.
  • Delta — If a call has delta of 0.5, it gains $0.50 for every $1 the stock rises. Delta 1.0 means the option moves dollar-for-dollar with the stock. At-the-money options typically have delta near 0.5.
  • Strike Price — The strike price is the agreed price in the option contract. For a call, you can buy the stock at the strike. For a put, you can sell at the strike. Choose your strike based on how big a move you expect.
  • Implied Volatility — Implied volatility is the market's guess about how much a stock will move. High IV means expensive options (the market expects big moves). Low IV means cheap options. Buy options when IV is low, sell when IV is high.