Moneyness
In finance,
moneyness is the relative position of the current price of an underlying asset with respect to the strike price of a derivative, most commonly a call option or a put option. Moneyness is firstly a three-fold classification: if the derivative would make money if it were to expire today, it is said to be
in the money, while if it would not make money it is said to be
out of the money, and if the current price and strike price are equal, it is said to be
at the money. There are two slightly different definitions, according to whether one uses the current price or future price, specified as "at the money spot" or "at the money forward", etc. This rough classification can be quantified by various definitions to express the moneyness as a number, measuring how far the asset is in the money or out of the money with respect to the strike – or conversely how far a strike is in or out of the money with respect to the spot price of the asset. This quantified notion of moneyness is most importantly used in defining the
relative volatility surface: the implied volatility in terms of moneyness, rather than absolute price.