Moneyness

Moneyness is a term describing the relationship between the strike price of an option and the current trading price of its underlying security. In options trading, terms such as in-the-money, at-the-money and out-of-the-money describe the moneyness of options.

At-the-Money (ATM)

An at-the-money option is a call or put option that has a strike price that is equal to the market price of the underlying asset. While the premiums for at-the-money options are relatively lower than in-the-money options, it possesses no intrinsic value and contains only time value which is greatly influenced by the volatility of the underlying security and the passage of time.

In-the-Money (ITM)

A call option is in-the-money when its exercise price is below the current trading price of the underlying asset. A put option is in-the-money when its exercise price is above the current trading price of the underlying asset.

In-the-money options possess significant intrinsic value and are generally more expensive.

Out-of-the-Money (OTM)

Calls are out-of-the-money when their strike price is above the market price of the underlying asset. Put options are out-of-the-money when their strike price is below the market price of the underlying asset.

Out-of-the-money options have zero intrinsic value and possess greater likelihood of expiring worthless, aspects which make them relatively cheaper.