How to Classify Call and Put Options by Moneyness
Summary
The document explains how an option’s moneyness is determined by comparing its strike price with the current price of the underlying asset. A call is in the money when its strike is below the asset price, while a put is in the money when its strike is above it. Equal strike and asset prices indicate at-the-money status for either option type; the opposite relationships indicate out-of-the-money status.
A Bitcoin example illustrates that moneyness can be approximate in practice: when the underlying trades near a strike, traders may call that strike at the money even if prices are not precisely equal. The article also notes that an options interface may visually highlight in-the-money contracts. It is an introductory classification guide rather than a valuation or trading method; it does not address premiums, expiration, volatility, or how moneyness alone affects a position’s risk or expected return.
Key ideas
- Option moneyness compares the strike price with the current price of the underlying asset.
- A call is in the money below the underlying price and out of the money above it.
- A put is in the money above the underlying price and out of the money below it.
- At-the-money commonly includes strikes near the current underlying price, not only exact matches.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.