Definition
Moneyness describes where an option's strike price sits relative to the current price of the underlying asset. It sorts every option into one of three states: in the money, at the money, or out of the money.
An option is in the money when exercising it would yield value, at the money when the strike is roughly equal to the underlying price, and out of the money when exercising would yield nothing. Moneyness is the single most useful label for understanding how an option will behave.
Why it matters
How it works
For a call, in the money means the underlying trades above the strike; for a put, it means the underlying trades below the strike. The reverse defines out of the money. At the money describes a strike near the current price, where the option carries no intrinsic value but maximum time value and sensitivity.
Moneyness drives an option's whole character. A deep in-the-money option moves almost dollar-for-dollar with the underlying and is mostly intrinsic value. An out-of-the-money option is all time value and may move little until the underlying approaches the strike. Traders read moneyness directly off the option chain, choosing strikes that match how aggressive or conservative they want a position to be.