Moneyness
Strike-to-spot ratio (ATM / ITM / OTM).
The relationship between an option's strike and the current spot (or forward). Classifies the contract as in-the-money, at-the-money, or out-of-the-money. Drives the option's greek profile and trading behavior.
Standardized moneyness expresses strike distance in standard deviations of the log-forward, making strikes comparable across tenors and vols.
- Deep ITM: high intrinsic, delta near 1 (calls) or −1 (puts) — stock-like behavior.
- Deep OTM: mostly convexity, low delta, cheap — tail/wing character.
- ATM: maximum gamma and vega; most responsive to spot and IV moves.
API Reference
Why Moneyness Matters for Trading
Moneyness selects which greek profile you're buying. ATM = gamma/vega, OTM = cheap convexity, ITM = leveraged directional. Every options trade starts with this choice.
- What it measures
- Distance from strike to spot (or forward), either as a ratio or normalized in standard deviations.
- What it signals
- The option's greek character: directional vs vol-sensitive vs tail-like.
- Why we measure it
- Vol surfaces are parameterized in log-moneyness; strategy selection depends on the moneyness bucket.
- Who uses it
- Every options trader, strategy builders, vol-surface modelers, delta-targeters.
How to read Moneyness
- Delta near 1 (−1 for puts)
- Low gamma/vega
- Acts like leveraged stock
- Used for synthetic long/short
- Low delta, high gamma/delta ratio
- Cheap convexity
- Tail-hedge and wing strategies
- Skew/IV-sensitive pricing
- Max gamma and vega
- Delta ~0.5
- Straddles, calendars
- Most theta/premium per dollar
Rules of thumb
- Use forward-based moneyness for dividend-paying names or long-dated options — spot-based ratios drift from theoretical centers.
- Compare across names in standardized units. A 1-sigma OTM SPY call is structurally the same trade as a 1-sigma OTM TSLA call.
- ATM moves with spot. Today's ATM is tomorrow's ITM or OTM — manage exposure at strike-relative, not price-relative, levels.
- Skew lives in moneyness. OTM puts trade richer than OTM calls by the skew; moneyness is the axis to see it.
- DTE changes moneyness meaning. A 2% OTM 0DTE is different from a 2% OTM 90DTE; standardized moneyness collapses them to one number.
Related Concepts
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