What Is the Concept of “Moneyness” in Relation to Options Contracts?

Moneyness describes the relationship between an option's strike price and the underlying asset's current market price. It determines whether an option has intrinsic value, which is the immediate profit upon exercise.

There are three states: In-the-Money (ITM), At-the-Money (ATM), and Out-of-the-Money (OTM). This concept is crucial for understanding an option's premium and its potential profitability at expiration.

It is a fundamental measure in options trading.