I’ve read a few option books.
THANKS... This is probably the most comprehensive "greeks" article/book I’ve read.

Wonderful blog. …..
A wonder wealth of knowledge there. Thanks so much for your kindness in publishing it!

Thank you very much for the most concise and simplest option intro. Highly recommended.

So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Wednesday, April 25, 2007

In-The-Money, At-The-Money, and Out-Of-The-Money Options (Options Moneyness)

Options Moneyness
Options Moneyness is the relationship between an option’s Strike Price with the current price of the underlying security (i.e. stock price).

There are 3 states of Options Moneyness:
* In The Money (ITM)
* At The Money (ATM)
* Out Of The Money (OTM)
As the stock price moves, an option would move from one moneyness state to another.

Whether an option is In The Money (ITM), At The Money (ATM), and Out of The Money (OTM) is determined by the relationship between an option’s Strike Price with stock price (i.e. where the Option’s Strike Price is in relation to the current stock price).
This relationship is also depending on the types of options, i.e. whether it is Call or Put option.

For Call Option:
Call options is called “In The Money (ITM)” if the Strike Price is less than the current stock price, because the call option buyer has the right to buy the stock at the price that is less than the price he would have to pay if he buys the stock in the market.
Call options is called “At The Money (ATM)” if the Strike Price is equal to the current stock price.
And Call options is called “Out Of The Money (OTM)” if the Strike Price is more than the current stock price, because it will be cheaper to buy the stock from the market than to exercise the call option.

For Put Option:
Put options is called “In The Money (ITM)” if the Strike Price is more than the current stock price, because the put option buyer has the right to sell the stock at the price that is more than the price he would receive if he sells the stock in the market.
Put options is called “At The Money (ATM)” if the Strike Price is equal to the current stock price.
And Put options is called “Out Of The Money (OTM)” if the Strike Price is less than the current stock price, because it will be better off to sell the stock in the market than to exercise the put option.

Related Topics:
* FREE Trading Educational Videos You Should Not Miss
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

0 comments: