Log Moneyness and Log Strike in Volatility Analysis

Summary

The document asks how log moneyness differs from log strike, particularly when describing coordinates used in volatility-surface work. It also asks why practitioners use the term “moneyness” and whether it refers to an option being in or out of the money. The distinction matters because a strike is an absolute price level, while moneyness relates the strike to the underlying price.

The text poses these terminology questions but supplies no answer, formula, worked example, or evidence. It therefore identifies a useful conceptual issue for option analysis rather than teaching a complete method. In practice, the precise definition of log moneyness depends on convention, including the ratio’s orientation and whether forward or spot prices are used; those details are not specified here.

Key ideas

• Strike is an absolute option exercise price, while moneyness expresses strike relative to the underlying price.
• Log moneyness provides a scaled coordinate for describing options across underlying price levels.
• The document asks whether moneyness terminology refers directly to being in the money but does not resolve the question.
• It does not specify the convention used for calculating log moneyness.

Tags

# Log Moneyness vs Log Strike


# Log Moneyness vs Log Strike












In How to calibrate a volatility surface using SVI, is said: "(log-moneyness would be more accurate) ".

First, why do we talk about "moneyness", is it a reference of "being in the money"?

Second, why moneyness instead of strike ? Is it in order to remind that we are not talking about a defined strike priced but we are talking about a scaled striked i.e. moneyness?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.