Moneyness of Options -2 - Moneyness is a measure of the degree to which an option is likely to have positive monetary value at its expiration. There are 3 categories in which we can divide the moneyness of option.

In The Money (ITM)

An in-the-money option has positive intrinsic value as well as time value. A call option is in-the-money when the strike price is below the spot price. A put option is in-the-money when the strike price is above the spot price The option holder would exercise his right if the option is ITM

At The Money (ATM)

It’s a point when the strike price is the same as the spot price of the underlying security on which the option is written. An at-the-money option has no intrinsic value, only time value the money. The option holder would be indifferent at this point.

Out Of The Money (OTM)

An out-of-the-money option has no intrinsic value. A call option is out-of-the-money when the strike price is above the spot price of the underlying security. A put option is out-of-the-money when the strike price is below the spot price. The option holder would not exercise his right here .