How Does the “Moneyness” of an Option Affect Its Premium Value?

Moneyness refers to the relationship between the underlying asset's current price and the option's strike price. Options that are "in-the-money" (ITM) have intrinsic value and a higher premium.

Options "at-the-money" (ATM) and "out-of-the-money" (OTM) have only extrinsic (time and volatility) value. The closer an option is to being ITM, the higher its premium, reflecting a greater likelihood of profitable exercise.