Moneyness

Moneyness describes the relationship between an option's strike price and the current price of the underlying stock. It answers one question: if you exercised this option right now, would it have value?

There are three states of moneyness: in the money (ITM), at the money (ATM), and out of the money (OTM).

Why it matters: Moneyness determines an option's intrinsic value, its delta, how it responds to time decay and IV changes, and its probability of expiring profitably. It's the primary lens through which strike selection is made.

Moneyness and delta: Delta provides a continuous, quantitative measure of moneyness:

• Deep ITM: delta near 1.0 (calls) / -1.0 (puts)
• ATM: delta near 0.50
• OTM: delta between 0 and 0.50
• Far OTM: delta near 0

Moneyness changes dynamically: As the stock price moves, the moneyness of every option in the chain shifts. An OTM call becomes ATM if the stock rises to the strike, then ITM if it continues higher. This shift is reflected in the changing delta of the option.

Example:

• Stock at $100, $90 call → ITM ($10 intrinsic value)
• Stock at $100, $100 call → ATM (zero intrinsic value, max extrinsic)
• Stock at $100, $110 call → OTM (zero intrinsic value, lower extrinsic)

Related terms: ITM, ATM, OTM, delta, intrinsic value, extrinsic value, strike price

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