Options Moneyness
The relationship between an option's strike price and the current market price of the underlying asset, categorised as in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM), which determines the option's intrinsic value, delta, and probability of expiring with value.
Moneyness is one of the most frequently used concepts in options trading, serving as a shorthand for how close or how far an option's strike price is from the current market price. It directly influences the option's premium, its delta (and therefore its hedge ratio), and the probability that the option will expire with intrinsic value.
An in-the-money call option has a strike price below the current market price of the underlying. For example, if Nifty is at 22,000 and a call option has a strike of 21,500, it is 500 points in the money. The option has an intrinsic value of 500 (multiplied by the lot size), plus whatever time value remains. An in-the-money put option has a strike above the current market price.
An at-the-money option has a strike price closest to (or equal to) the current market price. In practice, exchanges list strikes in discrete intervals, so the ATM option is the one with the strike nearest to the spot price. ATM options have the highest time value (extrinsic value) relative to their premium because they have the greatest uncertainty about which side of the strike the underlying will finish. Theta decay is most severe for ATM options, and they carry a delta of approximately 0.50.
An out-of-the-money call has a strike above the current market price; an OTM put has a strike below. OTM options have no intrinsic value — their entire premium consists of time value. As the option moves further out of the money, its delta approaches zero and its premium shrinks. Deep OTM options may trade for a few rupees or even fractions of a rupee per share in the last days before expiry.
In the context of option chain analysis on NSE's website, market participants scanned the moneyness of multiple strikes to assess where open interest was concentrated. Large OI at a particular strike often signalled that market participants expected the underlying to remain on a specific side of that strike, making moneyness analysis a tool for gauging market sentiment.