Option Moneyness Explained: Overview, Types, How to Use

In options trading, not all contracts behave the same even when they share the same expiration date. One of the most important factors shaping an option’s behavior is moneyness.

Option moneyness describes the relationship between the option’s strike price and the current price of the underlying asset. It tells traders whether an option already has value, has the potential to gain value, or is unlikely to become profitable before expiration.

Understanding option moneyness helps traders manage expectations. It explains why some options are expensive but stable, while others are cheap but highly speculative.

Moneyness is not a strategy. It is a classification that influences risk, payoff, and sensitivity to market movement.

Types of Moneyness

Options are grouped into three moneyness categories based on where the underlying price sits relative to the strike price.

In-the-money (ITM)

An option is in the money when it already has intrinsic value.

• For call options, this occurs when the underlying price is above the strike price.
• For put options, this occurs when the underlying price is below the strike price.

ITM options behave more like the underlying asset. They are more expensive, less sensitive to volatility changes, and retain value better as expiration approaches.

At-the-money (ATM)

An option is at the money when the underlying price is very close to the strike price.

ATM options have little to no intrinsic value. Their price is made up almost entirely of extrinsic value.

These options are highly sensitive to both price movement and implied volatility. Small changes in the underlying can significantly affect option value.

Out-of-the-money (OTM)

An option is out of the money when it has no intrinsic value.

• For call options, this occurs when the underlying price is below the strike price.
• For put options, this occurs when the underlying price is above the strike price.

OTM options are cheaper, but they require price movement to become profitable. If that movement does not occur before expiration, the option expires worthless.

OTM options offer high leverage but come with a lower probability of success.

If you want to compare how ITM, ATM, and OTM options behave in live markets, you can trade on Gotrade and observe how moneyness affects option pricing in real time.

Why Moneyness Matters

Moneyness matters because it directly shapes risk, probability, and payoff structure.

1. Moneyness affects intrinsic and extrinsic value composition. ITM options contain real value, while ATM and OTM options rely on future movement.
2. Moneyness influences time decay. OTM and ATM options lose value faster as expiration approaches, while ITM options retain more value.
3. Moneyness affects volatility exposure. ATM options are most sensitive to changes in implied volatility, while deep ITM options are less affected.
4. Moneyness determines probability of profit. ITM options have a higher likelihood of expiring with value, while OTM options offer higher payoff potential but lower probability.

Understanding moneyness helps traders choose contracts that align with their expectations rather than chasing cheap premiums or exaggerated returns. Moneyness is about trade-offs, not superiority.

How Professionals Use Option Moneyness

Professional traders use moneyness as a tool for structuring risk.

• They select ITM options when seeking stability and directional exposure.
• They use ATM options when positioning for volatility.
• They choose OTM options when speculating on large moves with defined risk.

Moneyness is adjusted based on strategy, time horizon, and market conditions.

Rather than asking “Which option is cheapest?” professionals ask “Which moneyness fits this trade idea?”

Conclusion

Option moneyness describes where an option stands relative to the underlying price and determines how it behaves over time.

Understanding option moneyness helps traders manage expectations around cost, probability, and risk. ITM, ATM, and OTM options each serve different purposes.

Options trading becomes clearer when moneyness is treated as a structural choice rather than a guessing game.

If you want to apply option moneyness concepts while trading options, you can trade on Gotrade and explore contracts that fit your strategy and risk tolerance.

FAQ

What is option moneyness?
It is the relationship between an option’s strike price and the underlying asset’s price.

Which moneyness is best for beginners?
ITM options are generally more stable, but suitability depends on goals and risk tolerance.

Do OTM options always expire worthless?
No, but they require price movement to gain intrinsic value.

Does moneyness change over time?
Yes. As the underlying price moves, an option’s moneyness can shift.

References:

• Investopedia, Option Moneyness Explained, 2026.

• CME Group, Calculating Options Moneyness, 2026.