Discover the concept of ‘moneyness’

Moneyness is the relationship between the strike price and the market price of the underlying asset during the lifetime of an option. Learn about the difference between ‘at the money’, ‘in the money’, and ‘out of the money’ and what each term means. 

Go to the last Options Investing E-learning module

Positions

Learn how options can be used in practice

Now that you have learned how options work, discover how they can be used in practice. Learn about the financial performance (profit or loss) of the positions you can take when trading options. Understand the different payoffs of calls and puts and long and short positions.

Positions

Moneyness explained in detail

An option is referred to as “at-the-money” when its strike price is equal to the (future) price of the underlying value (future = spot price + interest over the life time – dividends paid during the life time).

A call option is referred to as “in-the-money” when its strike price is below the (future) price of the underlying value. A put option is referred to as “in-the-money” when its strike price is above the (future) price of the underlying value.

A call option is referred to as “out-of-the-money” when its strike price is above the (future) price of the underlying value. A put option is referred to as “out-of-the-money” when its strike price is below the (future) price of the underlying value.

When a call option is in-the-money, then a put option of the same series is out-of-the-money, and vice versa.

The option premium consists of two components, intrinsic value and time value. The time value is highly dependent on the time-to-maturity, the price volatility of the underlying asset and on the moneyness of the option series. Generally, the higher the price volatility, the higher the time value. Also, the longer the time-to-maturity, the higher the time value. When comparing options with an identical underlying value and time-to-maturity, at-the-money options have the highest time value.

Disclaimer

The Euronext Option Investing E-learning training (“the Training”) is provided as a service to the public for information purposes only and is not a recommendation to engage in investment activities. The Training is provided “as is” without representation or warranty in any kind. Whilst all reasonable care has been taken to ensure the accuracy of the content of the Training, Euronext does not guarantee its accuracy or completeness. Euronext will not be held liable for any loss or damages of any nature ensuing from using, trusting or acting on the information provided in the Training. Retail investors who wish to trade on the regulated markets operated by Euronext and require any information or advice in this regard should consult their financial intermediary. All propriety rights and interests in or connected with this Training shall vest with in Euronext and Entrima. No part of it may be redistributed or reproduced in any form. © 2021, Euronext N.V. – All rights reserved.