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Moneyness of an Option

The Moneyness of an option contract is a classification method that helps the trader to decide which strike to trade, given a particular circumstance in the market.

    • In the Money (ITM)
    • At the Money (ATM)
    • Out of the Money (OTM)

    Practically,
    • Deep In the money
    • In the Money (ITM)
    • At the Money (ATM)
    • Out of the Money (OTM)
    • Deep Out of the Money
    If the intrinsic value is a non zero number, then the option strike is considered ‘In the money’. If the intrinsic value is a zero the option strike is called ‘Out of the money’.
    ATM option is that option strike which is closest to the spot price.

    In the Money Call Option (ITM call)
    If the spot price is greater than the strike price. That call option is called in the money call.
    For example,
    Spot Price - Strike Price > 0, said to be in the money call option.

    At the Money call Option (ATM Call)

    If the spot price is almost equal to strike price, the strike is said to be at the money.
    Spot Price - Strike Price = 0 (Difference is less), said to be ATM. Delta of an ATM call or put is around 0.5. Delta is one of the option Greeks. You can learn about option Greeks here. 
    Delta of an ATM call or put is around 0.5.
    Out of the Money Call (OTM call)
    Spot price - strike price < 0, said to be OTM call option.

    In the Money Put (ITM Put)
    Strike Price - Spot price > 0, said to be ITM put.

    Out the Money Put (OTM Put)
    Strike Price - Spot Price < 0, said to OTM Put.

     Let's understand it with the help of Option Chain.


Option Chain
  • The underlying spot value is at 11558.
  • The Call options are on the left side of the option chain.
  • The Put options are on the right side of the option chain.
  • The strikes are stacked on an increasing order in the center of the option chain.
  • Considering the spot at 11558, the closest strike is 11550, hence that would be an ATM option (highlighted in orange).
  • For Call options – all option strikes lower than ATM options are ITM option, hence they have a pale yellow background.
  • For Call options – all option strikes higher than ATM options are OTM options, hence they have a white background.
  • For Put Options – all option strikes higher than ATM are ITM options, hence they have a pale yellow background.
  • For Put Options – all option strikes lower than ATM are OTM options, hence they have a white background.
  • When the intrinsic value is very high, it is called ‘Deep ITM’ option.
  • Likewise, when the intrinsic value is the least, it is called ‘Deep OTM’ option.


Moneyness of an Option Reviewed by Kumar Chandan on February 29, 2020 Rating: 5

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