Option Moneyness Explained Simply | Firstock

Introduction

Have you ever looked at options trading and felt it was too complex or only for experts? You’re not alone. Many people step back the moment they hear words like in-the-money or out-of-the-money. But here’s the truth: option moneyness is actually one of the simplest and most practical concepts in options trading—once explained the right way.

Think of option moneyness like checking whether a train ticket is useful today, later, or never. That’s exactly what moneyness tells you—whether an option has value right now or not.

In this guide, we’ll break down option moneyness, explain what is moneyness in options, explore the moneyness of options, and show how a discount broker like Firstock makes learning and trading options easier for everyday people.

No jargon. No heavy math. Just simple, practical explanations you can actually use.

Learn option moneyness, what is moneyness in options, moneyness of options & how a discount broker like Firstock helps beginners trade smarter.

What Is Option Moneyness?

Option moneyness simply tells you whether an option is profitable, break-even, or unprofitable at the current market price.

In other words, it answers one simple question:

If I exercise this option right now, will I make money?

Based on the answer, options fall into three categories:

• In-the-Money (ITM)
  
  

• At-the-Money (ATM)
  
  

• Out-of-the-Money (OTM)
  
  

That’s it. No mystery.

What Is Moneyness in Options Trading?

So, what is moneyness in options trading exactly?

Moneyness compares:

• Strike Price (the price agreed in the option contract)
  
  

• Current Market Price of the stock or index
  
  

If the market price is favorable compared to the strike price, the option has value. If not, it doesn’t.

👉 Moneyness of options helps traders decide:

• Which option to buy
  
  

• How risky the trade is
  
  

• How much the option may cost
  
  

Why Option Moneyness Is Important

You may ask, “Can I trade options without understanding moneyness?”
Technically yes—but practically, it’s like driving with your eyes closed.

Option moneyness matters because it affects:

• Option price
  
  

• Risk vs reward
  
  

• Probability of profit
  
  

• Trading strategy
  
  

Smart traders always check moneyness before placing a trade.

Types of Option Moneyness

Let’s break the three types in the simplest way possible.

The Three Categories

• In-The-Money (ITM) – Already profitable
  
  

• At-The-Money (ATM) – At break-even point
  
  

• Out-Of-The-Money (OTM) – Needs movement to become profitable
  
  

Think of them as ripe, half-ripe, and raw fruit 🍎.

In-The-Money (ITM) Options Explained

An option is In-The-Money when it already has intrinsic value.

For Call Options

• Market Price > Strike Price
  
  

For Put Options

• Market Price < Strike Price
  
  

Why ITM Options Are Popular

• Higher probability of profit
  
  

• Lower risk
  
  

• More expensive premiums
  
  

👉 Best suited for conservative traders.

At-The-Money (ATM) Options Explained

ATM options are right at the sweet spot where:

• Market Price ≈ Strike Price
  
  

They don’t have intrinsic value yet—but they’re closest to becoming ITM.

Why Traders Love ATM Options

• Balanced risk and reward
  
  

• High liquidity
  
  

• Ideal for beginners
  
  

ATM options are like standing at the door—you’re just one step away from profit.

Out-Of-The-Money (OTM) Options Explained

OTM options have no intrinsic value right now.

For Call Options

• Market Price < Strike Price
  
  

For Put Options

• Market Price > Strike Price
  
  

Why People Still Buy OTM Options

• Very cheap
  
  

• High reward potential
  
  

• Useful for speculative trades
  
  

⚠️ But remember: High reward comes with high risk.

Option Moneyness with a Real-Life Example

Let’s say:

• Stock price = ₹100
  
  

• Call option strike price = ₹90, ₹100, ₹110
  
  

Simple, right?

Call Option vs Put Option Moneyness

Call Option Moneyness

• ITM: Price above strike
  
  

• ATM: Price near strike
  
  

• OTM: Price below strike
  
  

Put Option Moneyness

• ITM: Price below strike
  
  

• ATM: Price near strike
  
  

• OTM: Price above strike
  
  

Understanding this difference is crucial for correct trade selection.

How Option Moneyness Affects Pricing

Option moneyness directly impacts option premium.

• ITM options → Expensive
  
  

• ATM options → Moderately priced
  
  

• OTM options → Cheap
  
  

Why? Because the closer an option is to profit, the more it costs.

Option Moneyness and Risk Levels

If you’re new, ATM options are often the safest starting point.

Common Beginner Mistakes with Moneyness

Many beginners:

• Buy OTM options just because they’re cheap
  
  

• Ignore probability of profit
  
  

• Don’t understand time decay
  
  

Cheap options are tempting, but not always smart.

How Discount Brokers Like Firstock Help

A discount broker like Firstock makes learning and trading easier by offering:

• Low brokerage
  
  

• Simple trading platforms
  
  

• Clear option chains
  
  

• Beginner-friendly tools
  
  

When costs are low, beginners can focus on learning option moneyness without pressure.

Choosing the Right Option Moneyness

Ask yourself:

• How much risk can I take?
  
  

• Do I want safety or high reward?
  
  

• How much capital do I have?
  
  

Conservative? Choose ITM
Balanced? Choose ATM
Aggressive? Choose OTM

There’s no “best”—only what suits you.

Final Thoughts on Option Moneyness

Option trading doesn’t have to be scary. Once you understand option moneyness, everything becomes clearer—from pricing to risk to strategy.

Whether you’re trading through a discount broker like Firstock or just learning the basics, moneyness of options is the foundation you must master.

Start simple. Stay patient. Learn step by step.

FAQs 

1. What is option moneyness in simple words?

Option moneyness shows whether an option is profitable, break-even, or unprofitable at the current market price.

2. What is moneyness in options trading used for?

It helps traders choose the right option based on risk, price, and probability of profit.

3. Is In-The-Money option better than Out-Of-The-Money?

ITM options are safer but cost more, while OTM options are cheaper but riskier.

4. Which option moneyness is best for beginners?

At-The-Money (ATM) options are generally best for beginners due to balanced risk.

5. How does a discount broker help in options trading?

A discount broker like Firstock reduces trading costs and provides simple tools, making it easier to learn and trade options.