Moneyness

What is Moneyness?

Moneyness is a description of a derivative relating its strike price to the price of its underlying asset. Moneyness portrays the intrinsic value of an option in its current state. The term moneyness is generally ordinarily utilized with put and call options and is an indicator regarding whether the option would bring in money assuming that it were exercised right away. Moneyness can be estimated with respect to the underlying stock or other asset's current/spot price or its future price.

Breaking Down Moneyness

Moneyness tells option holders whether practicing will lead to a profit. There are many forms of moneyness, remembering for, out or at the money. Moneyness takes a gander at the value of an option if you somehow happened to exercise it right away. A loss would imply the option is out of the money, while a gain would mean it's in the money. At the money means that you will break even after practicing the option.

Illustration of Moneyness

On the off chance that the current price of XYZ stock is $50, a call or put option with a strike price of $50 would be at the money. Practicing the option would result in a breakeven for the investor. A put with a strike price of $75 would be in the money since it would permit the holder of the put to sell the stock at a higher cost than it is currently trading. Then again, a call with a strike price of $75 would be out of the money since there is not a great explanation why the holder of a call would maintain that the opportunity should purchase XYZ stock for $75 when they could get it on the open market for $50.