Close to the Money

What Is "Close to the Money"?

The phrase "close to the money" alludes to a options contract whose strike price is close to the current market price of the comparing underlying security. "Close to the money" is an alternative phrase, assigning a similar situation. It is exceptionally close to being "at the money"(ATM), however not exactly the equivalent.

A call option is thought of "in the money" (ITM) on the off chance that its strike price is lower than the market price, the option is viewed as close to the money on the off chance that its strike price is lower than the market price however incredibly close to it. Notwithstanding, assuming the strike price is higher than the market price, it would be "out of the money" (OTM). A put option's moneyness would work in inverse course.

Close to the money is one of the states of option moneyness, alongside in the money and out of the money (OTM).

Figuring out Near the Money

An options contract is supposed to be "close to the money" when the strike price, or the price at which the option can be worked out, and underlying security's price are close. While there is no official figure for "close," assuming that difference is typically under 50 pennies, the options contract is viewed as close to the money. For instance, an option with a current market value of $20 and a strike price of $19.80 would be viewed as close to the money, as the difference between the strike price and the market value is just 20 pennies.

A contract is thought of "at the money" when the strike price is equivalent to the market price of the underlying security. The term "close to the money" is much of the time used to mean exactly the same thing as "at the money," since it is rare at options costs to be at the money, or equivalent to the strike price, of the commodity being referred to. Hence, options trading quite often utilizes close to the money or nearest the money options as opposed to at the money options.

At or close to the money options contract typically cost more (i.e., they have a higher premium) than out of the money options, in which the underlying instrument's price is fundamentally higher or lower than the strike price. Close to the money options contain intrinsic value assuming they are somewhat out of the money, however can contain both intrinsic and extrinsic value on the off chance that they are somewhat in the money.

Close to the Money versus At the Money

Since it is so rare for an options price to fix up precisely with the strike price for that stock, practically all at the money options trades will occur close to the money all things considered. Most traders endeavor to trade options when they are in the money so they can pay not exactly the current market price for the stock, and create a gain.

When at the money, options have a delta value of 0.5 or - 0.5 for put options. This means that the option is similarly prone to one or the flip side up out of the money or in the money when the options contract lapses. Close to the money options will have a higher or lower delta value, contingent upon the fact that they are so close to the strike price.

Features

• A contract that is close to the money is close to being at the money however will be somewhat ITM or OTM.
• A close to the money option is one whose strike price is close to, yet not at, the current underlying price.
• Close to the money is one of the states of option moneyness, alongside at the money (ATM), in the money (ITM), and out of the money (OTM).