What is the moneyness of an option?
Moneyness is a key concept in options trading that indicates whether exercising an option would lead to a profit if done immediately. It describes the relationship between the option’s strike price and the current market price of the underlying asset.
Types of Moneyness
In-The-Money (ITM)
- Call Option: Market price is higher than the strike price
- Put Option: Market price is lower than the strike price
Out-Of-The-Money (OTM)
- Call Option: Market price is lower than the strike price
- Put Option: Market price is higher than the strike price
At-The-Money (ATM)
- The market price equals the strike price
- Applies to both calls and puts
Example: Reliance Industries Limited
Assume Reliance shares are trading at ₹2,100:
- Call @ ₹2,050 → ITM
- Put @ ₹2,150 → ITM
- Call @ ₹2,200 → OTM
- Put @ ₹2,050 → OTM
- Call/Put @ ₹2,100 → ATM
What if...
| Scenario | Outcome |
|---|
| Option is ITM at expiry | Likely to be auto-exercised |
| Option is OTM at expiry | Expires worthless |
| Option is ATM | Small movement in market price will change moneyness status |
Tip: Knowing the moneyness of an option helps you evaluate its intrinsic value and potential profitability.
For a deeper understanding of Options, visit our School of Stocks.
Last updated: 27 Jun 2025
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