Options Trading QuickStart Guide by ClydeBank Finance

Author:ClydeBank Finance
Language: eng
Format: epub
Publisher: ClydeBank Media LLC
Published: 2017-06-12T23:59:18+00:00

The Moneyness Factor

Chapter 3 talked about the concept of being in the money (ITM) or out of the money (OTM). The difference between an option’s set strike price and the price of the underlying asset or stock is known as the moneyness factor, and Fontanills argues that moneyness is the most critical determinant of an option’s price. You can see the moneyness factor at work in virtually any option chain. Take, for instance, an option chain for Tyco International.

In Fg. 12 a series of call options are listed for Tyco International (TYC), complete with the current bid and ask prices. The per share price of TYC is $32.22, and the strike prices for the call options range from $29 to $37. Since these are call options, any strike price below the current price is said to be ITM. As you are sure to see in most any option chain, options become less expensive the less in the money and the more out of the money they become.

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