What is moneyness of an option?
Moneyness is a term describing the relationship between the strike price of the option contract and the current market price of the underlying asset. There are three types of moneyness, In-The-Money (ITM), At-The-Money (ATM) and Out-Of-The-Money (OTM).
What is the impact of moneyness on options premium?
It is widely seen that ITM options command the highest premium, followed by ATM options and lastly by OTM options.
What is a Put Option?
An option which gives the buyer of the options contract the right, but not an obligation, to sell the underlying asset at the strike price on a specified date in the future. The date specified in the contract is known as the expiration date or the ...
What is a Call Option?
An option which gives the buyer the right, but not an obligation, to buy the underlying asset at a predetermined price on a specified date in the future. The date specified in the contract is known as the expiration date or the maturity date. The ...
What is At the Money (ATM) option?
An option is said to be at the money if the spot price of the underlying is equal to the strike price. Any movement in the spot price of underlying from this stage would either make the option ITM or OTM.
What is the effect of selling a Call Option?
The seller of the call option has an obligation to sell the underlying asset at the strike price if the buyer of the call option chooses to execute his right. The seller receives a ‘Premium’ from the buyer.