Moneyness
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
atthemoney 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
outthemoney option currently has no intrinsic value  e.g. a
call option is outthemoney if the strike is higher than the current underlying price. An
inthemoney option conversely does have intrinsic value. The strike of an inthemoney 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 atthemoney. A call option struck at $80 is inthemoney. A put option struck at $80 is outthemoney. 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 BlackScholes model moneyness may be defined quantitatively. If we define the moneyness as

where and are the standard BlackScholes parameters then

This choice of parameterisation means that the moneyness is zero when the forward/underlying price matches the strike after discounting at the riskfree rate. Moneyness is measured in standard deviations from this point, with a positive value meaning an inthemoney option and a negative value meaning an outthemoney option.
See also