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Option Moneyness

Definitions:

  1. In-the-Money (ITM):
  2. Call Option: \( S_T > K \)

  3. Put Option: \( S_T < K \)

  4. At-the-Money (ATM):

  5. \( S_T = K \)

  6. Out-of-the-Money (OTM):

  7. Call Option: \( S_T < K \)
  8. 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.

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