Moneyness is a concept in options trading that describes the relationship between an option’s strike price and the current price of its underlying asset. It indicates whether an option has intrinsic value or is likely to become profitable. This attribute is fundamental for assessing the risk and reward profile of options contracts in both traditional and institutional crypto options markets.
Mechanism
Moneyness is categorized into three states: “in-the-money” (ITM), “at-the-money” (ATM), and “out-of-the-money” (OTM). A call option is ITM if the underlying asset price is above the strike price; a put option is ITM if the underlying price is below the strike. ATM options have strike prices near the current underlying price, while OTM options have no intrinsic value. The mechanism relies on direct comparison of spot and strike prices.
Methodology
Understanding moneyness is critical for structuring options trading strategies, assessing premium values, and managing portfolio delta and gamma exposures. Traders use moneyness to identify options suitable for directional bets (OTM), hedging (ITM or ATM), or income generation (selling OTM options). In crypto institutional options trading and RFQ contexts, moneyness directly influences pricing models, liquidity provision, and risk calculations, informing how market makers quote and how institutions hedge their digital asset positions.
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