Option Moneyness
Definitions:
-
In-the-Money (ITM):
- Call Option: ( S_T > K )
- Put Option: ( S_T < K )
-
At-the-Money (ATM):
- ( S_T = K )
-
Out-of-the-Money (OTM):
- Call Option: ( S_T < K )
- Put Option: ( S_T > K )
Example:
- For a stock trading at $50:
- A call option with a strike price of $40 is ITM.
- A call option with a strike price of $50 is ATM.
- A call option with a strike price of $60 is OTM.