Moneyness

A term describing the relation of between the strike price of an option and price of the underlying security.

A call option is said to be in the money if the price of the underlying security is above the strike price. A put option is said to be in the money if the price of the underlying security is below the strike price.

An out-of-the-money option has no intrinsic value. Such an option is said to be under water.

An in-the-money option has a positive intrinsic value. The net proceeds from exercising an in-the-money call option, paying the strike price, and selling the stock acquired on exercise at the market price is positive. Likewise, the net proceeds from buying stock at the market price and putting it to the writer of an in-the-money put at the strike price is positive.

When the strike price equals the price of the underlying security, the option is said to be at the money. When the strike price is nearly equal to the price of the underlying security, the option is said to be near the money.

When the strike price is very from the price of the underlying security and the option is in the money, the option may be described as far-in-the-money or deep-in-the-money. Likewise, when the strike price is very from the price of the underlying security and the option is out of the money, the option may be described as far-out-of-the-money or deep-out-of-the-money.