{"id":26,"date":"2015-01-05T16:26:24","date_gmt":"2015-01-05T21:26:24","guid":{"rendered":"\/?p=26"},"modified":"2016-07-05T15:48:46","modified_gmt":"2016-07-05T19:48:46","slug":"moneyness","status":"publish","type":"post","link":"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/moneyness\/","title":{"rendered":"05) Moneyness"},"content":{"rendered":"<p>In options trading you\u2019ll hear these phrases a lot: \u201c<b>in the money<\/b>\u201d, \u201c<b>at the money<\/b>\u201d and \u201c<b>out of the money<\/b>\u201d. These are what is known as <b>\u201cmoneyness\u201d<\/b>.<\/p>\n<p>They all refer to the relationship between\u2026<\/p>\n<ul>\n<li>The <b>strike price<\/b><\/li>\n<li>The current price of the <b>underlying stock<\/b>.<\/li>\n<li>and Whether it\u2019s a <b>call option<\/b> or a <b>put option<\/b><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><b>What does \u201cIn the Money\u201d mean?<\/b><\/h2>\n<p>To explain this very simply, <b>\u201cin the money\u201d calls <\/b>means that the given <b>strike price<\/b> of the calls is <b>less <\/b>than the current <b>underlying stock\u2019s price<\/b>.<\/p>\n<p><b>Calls &#8211; In the Money (ITM)<\/b><\/p>\n<p style=\"padding-left: 30px;\">strike price &lt; underlying stock price<br \/>\nFor example: $630 calls are <b><i>in the money<\/i><\/b> because the stock is<br \/>\ntrading at $639.70<\/p>\n<p>&nbsp;<\/p>\n<p><b>Puts &#8211; In the Money (ITM)<\/b><\/p>\n<p style=\"padding-left: 30px;\">strike price &gt; underlying stock price<br \/>\nFor example: $650 puts are <b><i>in the money<\/i><\/b> because the stock is<br \/>\ntrading at $639.70<\/p>\n<h2><b>What does \u201cOut of the Money\u201d mean?<\/b><\/h2>\n<p><b>\u201cOut of the money\u201d calls <\/b>means that the given <b>strike price<\/b> of the calls is <b>greater <\/b>than the current <b>underlying stock\u2019s price<\/b>.<\/p>\n<p><b>Calls &#8211; Out of the Money (OTM)<\/b><\/p>\n<p style=\"padding-left: 30px;\">strike price &gt; underlying stock price<br \/>\nFor example: $650 calls are <b><i>out of the money<\/i><\/b> because the stock is<br \/>\ntrading at $639.70<\/p>\n<p>&nbsp;<\/p>\n<p><b>Puts &#8211; Out of the Money (OTM)<\/b><\/p>\n<p style=\"padding-left: 30px;\">strike price &lt; underlying stock price<br \/>\nFor example: $630 puts are <b><i>out of the money<\/i><\/b> because the stock is<br \/>\ntrading at $639.70<\/p>\n<h2><b>What does \u201cAt the Money\u201d mean?<\/b><\/h2>\n<p><b>\u201cAt the money\u201d<\/b> refers to both call and put contracts where the <b>strike price<\/b> is very close to or the<b> same as<\/b> the <b>underlying stock price<\/b>.<\/p>\n<h2><b>Which \u201cMoneyness\u201d Should I Trade?<\/b><\/h2>\n<p>To answer this question, let\u2019s take a look at the major differences between <b>\u201cin the money\u201d <\/b>and <b>\u201cout of the money\u201d<\/b> contracts.<\/p>\n<p>Since options pricing is greatly dependant upon the probability that the <b>underlying stock price<\/b> will be <i>\u201cin the money\u201d<\/i> at the time of expiration, if the <b>call <\/b>or <b>put <\/b>contract that you are purchasing is \u201cin the money\u201d now, there is a greater probability that it\u2019ll be \u201cin the money\u201d later.<\/p>\n<p>This causes the price per contract to <b>increase <\/b>as you\u00a0choose a strike price <b>more and more \u201cin the money\u201d <\/b><\/p>\n<p>&#8230;and <b>decrease <\/b>as you choose a strike price<b> less and less \u201cin the money\u201d <\/b><\/p>\n<p>&#8230;and <b>decrease<\/b> <i>even more<\/i> as the strike price is <b>more and more \u201cout of the money\u201d.<\/b><\/p>\n<p>Here we can look at an underlying stock that is trading at $639.70.<\/p>\n<ul>\n<li><b>calls <\/b>at a strike of $630 = <i>most <\/i>expensive (and <i>most<\/i> in the money)<\/li>\n<li><b>calls <\/b>at a strike of $635 = <i>more <\/i>expensive (and <i>more<\/i> in the money)<\/li>\n<li>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8211;<\/li>\n<li><b>calls <\/b>at a strike of $640 = <i>less <\/i>expensive (and <i>more<\/i> out of the money)<\/li>\n<li><b>calls <\/b>at a strike of $650 = <i>least <\/i>expensive (and <i>most<\/i> out of the money)<\/li>\n<li><b>puts <\/b>at a strike of $630 = <i>least <\/i>expensive (and <i>most<\/i> out of the money)<\/li>\n<li><b>puts <\/b>at a strike of $635 = <i>less <\/i>expensive (and <i>less<\/i> out of the money)<\/li>\n<li>&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;&#8212;<\/li>\n<li><b>puts <\/b>at a strike of $640 = <i>more <\/i>expensive (and <i>more<\/i> in the money)<\/li>\n<li><b>puts <\/b>at a strike of $650 = <i>most <\/i>expensive (and <i>most <\/i>in the money)<\/li>\n<\/ul>\n<p>The more \u201c<b>in the money<\/b>\u201d you go with your strike price&#8230;<\/p>\n<ul>\n<li>The lesser the risk potential and the lesser the reward potential\u00a0and, the greater the cost per contract<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>The more \u201c<b>out the money<\/b>\u201d you go with your strike price&#8230;<\/p>\n<ul>\n<li>The greater the risk potential and the greater the reward potential\u00a0and, the lesser the cost per contract<\/li>\n<\/ul>\n<ul class=\"lcp_catlist\" id=\"lcp_instance_0\"><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/calls-and-puts\/\">02) Calls and Puts<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/volume-and-open-interest\/\">09) Volume and Open Interest<\/a><\/li><li class=\"current\"><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/moneyness\/\">05) Moneyness<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/bid-ask\/\">08) Bid &#038; Ask<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/options-chain\/\">01) Options Chain<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/expirations\/\">04) Expirations<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/strike-prices\/\">03) Strike Prices<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/selecting-a-broker\/\">10) Selecting a Broker<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/order-actions\/\">06) Order Actions<\/a><\/li><li><a href=\"https:\/\/www2.stockmarketwatch.com\/learn\/options\/basics\/greeks-beginner\/\">07) Greeks Beginner<\/a><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In options trading you\u2019ll hear these phrases a lot: \u201cin the money\u201d, \u201cat the money\u201d and \u201cout of the money\u201d. [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"video","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[88],"tags":[],"class_list":["post-26","post","type-post","status-publish","format-video","hentry","category-options-basics","post_format-post-format-video"],"_links":{"self":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/posts\/26","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/comments?post=26"}],"version-history":[{"count":0,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/posts\/26\/revisions"}],"wp:attachment":[{"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/media?parent=26"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/categories?post=26"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www2.stockmarketwatch.com\/learn\/wp-json\/wp\/v2\/tags?post=26"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}