Definition: Moneyness refers to the relationship between a stock’s current price and the strike price of an option. There are three varying levels of moneyness: in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM). Option premiums are affected by moneyness. Moneyness determines an option’s intrinsic value.


In-the-Money (ITM)
When an option is ITM, the buyer of that option has the right to exercise. For calls, the option is ITM when the strike price is below the current stock price. For puts, the option is ITM when the strike price is above the strike price. ITM options are more expensive because their premium value is a combination of both intrinsic and time value.

Out-of-the-Money (OTM)
When an option is OTM, the buyer of that option does not have the right to exercise. For calls, the option is OTM when the strike price is above the current stock price. For puts, the option is OTM when the strike price is below the strike price. OTM options are the least expensive because their premium value is comprised of only time value.

At-the-Money (ATM)
An option is considered ATM when the current stock price is equal to the call/put strike price. ATM options are valued based on time value. It will have more time value than OTM options, because it is closer to being ITM.