Mastering the Elements: Understanding Moneyness and Option Values

5 min read
Exploring Option Trading Basics

  • In-the-Money (ITM): For call options, the intrinsic value is calculated by subtracting the strike price from the current market price of the underlying asset. For put options, it’s the strike price minus the current market price. If this value is positive (greater than zero), the option has intrinsic value. It’s like the profit you could make instantly if you used the option. 
  • At-the-Money (ATM): At-the-money options have no intrinsic value because the current market price and the strike price are essentially the same. So, the intrinsic value for ATM options is always zero.  
  • Out-of-the-Money (OTM): Out-of-the-money options have zero intrinsic value as well because the current market price is not favorable compared to the strike price. The intrinsic value is negative for OTM options. 

In this video, Sanjeev takes you through a detailed exploration of the concepts we’ve covered, providing valuable insights and a deeper understanding. 

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