Moneyness

Moneyness is a term used in the stock market to describe the relationship between the current price of a stock and its strike price, which is the price at which an option can be exercised. Moneyness is a measure of how much intrinsic value an option has.


Three categories of Moneyness


In the Money

This refers to an option that has intrinsic value. For a call option, this means the current stock price is higher than the strike price. For a put option, this means the current stock price is lower than the strike price.


At the Money

This refers to an option where the current stock price is equal to the strike price. In this case, the option has no intrinsic value, it has only time value.


Out of the Money

This refers to an option that has no intrinsic value. For a call option, this means the current stock price is lower than the strike price. For a put option, this means the current stock price is higher than the strike price.


Final Thought

Moneyness is an important concept in options trading because it affects the price of an option. At-the-money options will have a price that reflects their time value only, while In-the-money options will generally have a higher price than Out-of-the-money options due to their intrinsic value.