Out-of-the-money
In finance, moneyness is a measure of the degree to which an derivative security is likely to have positive monetary value at its expiration. An option is at-the-money if the strike of the option is the same, or about the same, as the current price of the underlying security on which the option is on. An out-the-money option currently has no intrinsic value - e.g. a call option is out-the-money if the strike is higher than the current underlying price. An in-the-money option conversely does have intrinsic value. The strike of an in-the-money call option is lower than the current underlying price.
For example suppose the current stock price of IBM is $100. A call or put option struck at $100 is at-the-money. A call option struck at $80 is in-the-money. A put option struck at $80 is out-the-money. Conversely a $120 strike call option is out of the money and a $120 strike put option is in the money.
When working with the Black-Scholes model moneyness may be defined quantitatively. If we define the moneyness as
where  and  are the standard Black-Scholes parameters then
This choice of parameterisation means that the moneyness is zero when the forward/underlying price matches the strike after discounting at the risk-free rate. Moneyness is measured in standard deviations from this point, with a positive value meaning an in-the-money option and a negative value meaning an out-the-money option.
See also
Referenced By
Black-Scholes | Black-Scholes equation | Black-Scholes formula | Black-Scholes model
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