Define “Moneyness” in the Context of Options Trading.
Moneyness is a term used to describe the relationship between an option's strike price and the current price of the underlying asset. It is a classification system that determines whether an option is In-the-Money (ITM), At-the-Money (ATM), or Out-of-the-Money (OTM).
An option's moneyness dictates its intrinsic value and heavily influences its Delta and other Greeks. For example, a call option is ITM if the underlying price is above the strike price, and OTM if it is below.
Glossar
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.
Moneyness
Concept ⎊ Moneyness describes the intrinsic value relationship between an option's strike price and the current market price of the underlying asset, categorizing options as in-the-money, at-the-money, or out-of-the-money.
Delta
Parameter ⎊ In options theory, this measures the rate of change of an option's price relative to a one-unit change in the price of the underlying asset, often termed the first derivative of the option price with respect to the asset price.
OTM
Horizon ⎊ Options trading, particularly within cryptocurrency derivatives, frequently employs the term OTM to denote options with strike prices significantly beyond the current market price of the underlying asset.
Strike Price
Reference ⎊ The Strike Price is the predetermined reference level set at the contract's inception against which the underlying crypto asset's spot price is compared at expiration or exercise.
ITM
Definition ⎊ ITM, or In-the-Money, describes an option contract where the current market price of the underlying asset is favorable relative to the option's strike price.