Moneyness

Moneyness describes the intrinsic value status of an option based on the relationship between the strike price and the current market price of the underlying asset. There are three states: in the money (ITM) when exercising would be profitable, at the money (ATM) when the strike equals the market price, and out of the money (OTM) when exercising would not be profitable. Moneyness is a crucial concept because it affects every aspect of an option's behavior — its delta, gamma, theta, premium composition (intrinsic vs. extrinsic), and probability of expiring with value. Options traders often express moneyness in terms of delta (e.g., a "25-delta put") or as a percentage of the stock price (e.g., "5% OTM"). Understanding moneyness is essential for strike selection, strategy construction, and risk management in options trading.