Explain the Concept of ‘Moneyness’ Relative to the Strike Price

Moneyness is a term used to describe the relationship between the underlying asset's current market price and the option's strike price. It is categorized into three states: in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM).

Moneyness determines the option's intrinsic value and is a primary factor in the option's overall premium. The degree of moneyness is critical for traders assessing the risk and potential reward of a position.