Moneyness (In The Money, At The Money, Out of The Money)
Moneyness is a term used to describe the relationship between stock price and option strike price. There are 3 types:
At The Money (ATM) means the option's strike price is the same as (or very near to) the underlying stock price. Example: stock = 30, strike = 30.
In The Money (ITM) means the option's strike price is less than the underlying stock price. Example: stock = 30, strike = 25 -> the call option is "5 points in the money".
Out of The Money (OTM) means the option's strike price is more than the underlying stock price. Example: stock = 30, strike = 40 -> the call option is "10 points out of the money".
Moneyness is calculated as the amount the option is ITM or OTM divided by the stock price:
In The Money |
At The Money |
Out of The Money |
|
|---|---|---|---|
| Stock | 30 | 30 | 30 |
| Call Option | 25 strike | 30 strike | 40 strike |
| Moneyness | 16.7% ITM (25 - 30) / 30 | ATM (30 - 30) / 30 | 33.3% OTM (40 - 30) / 30 |
Several pages on this site have a Moneyness slider that looks like this:
Where you set the slider depends on your outlook for the stock, as well as how conservative you want to be (ITM on the left is more conservative than OTM on the right). This is discussed in more detail on the Best Option To Write section.