Moneyness is a Key figure in options tradingwhich, taking into account the exercise price of the Option and the current market price of the underlying. In practical trading, the concrete calculation of moneyness often plays a subordinate role for private traders, while the terms "In The Money", "At The Money" and "Out Of The Money" associated with it have become almost indispensable in the daily language of options traders.
Definition Moneyness
The Moneyness describes the Ratio of the exercise price of an option to the current price of the underlying. The term "moneyness" can be translated as "closeness to money" or "position to money". Depending on whether the price of the underlying is above the strike price of a call or put option, below it, or at the same level, the terms "moneyness" and "moneyness" are used. In The Money (in the money), Out Of The Money (out of the money), or At The Money (at the money) used.
Am Geld / At The Money (ATM)
An option whose strike price is identical to the current market price of the underlying (or is close to the current market price or is the closest strike price) is called "At The Money" (ATM).
Im Geld / In The Money (ITM)
A Call optionA financial instrument with a strike price below the current market price of the underlying is referred to as "in the money" (ITM).
Likewise, a Put optionThe exercise price of an option is higher than the current market price of the underlying, and is referred to as "in-the-money" (ITM).
Aus dem Geld / Out Of The Money (OTM)
A call option whose strike price is higher than the current market price of the underlying is called "Out Of The Money" (OTM).
Similarly, a put option whose strike price is below the current market price of the underlying is referred to as "Out Of The Money" (OTM).
Moneyness calculation
Moneyness can be calculated from the strike price and the current price of the underlying by dividing one by the other, depending on whether it is a call or a put.
Calculate moneyness of a call
The moneyness of a call option is calculated as follows:
Moneyness call = price of the underlying/strike price
Calculate moneyness of a put
The moneyness of a put option is calculated as follows:
Moneyness put = exercise price/price of the underlying
- For ATM options, this always results in a moneyness of 1,
- the moneyness of ITM options is greater than 1,
- the moneyness of OTM options is less than 1.