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Moneyness

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335: 2889: 1686:, as used in Delta, is subtler, and can be interpreted most elegantly as change of numéraire. In more elementary terms, the probability that the option expires in the money and the value of the underlying at exercise are not independent – the higher the price of the underlying, the more likely it is to expire in the money 594:
When quantifying moneyness, it is computed as a single number with respect to spot (or forward) and strike, without specifying a reference option. There are thus two conventions, depending on direction: call moneyness, where moneyness increases if spot increases relative to strike, and put moneyness,
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With an "in the money" call stock option, the current share price is greater than the strike price so exercising the option will give the owner of that option a profit. That will be equal to the market price of the share, minus the option strike price, times the number of shares granted by the option
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The other quantities – (percent) standardized moneyness and Delta – are not identical to the actual percent moneyness, but in many practical cases these are quite close (unless volatility is high or time to expiry is long), and Delta is commonly used by traders as a measure of (percent) moneyness.
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Assets can have a forward price (a price for delivery in future) as well as a spot price. One can also talk about moneyness with respect to the forward price: thus one talks about ATMF, "ATM Forward", and so forth. For instance, if the spot price for USD/JPY is 120, and the forward price one year
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The above is a traditional way of defining ITM, OTM and ATM, but some new authors find the comparison of strike price with current market price meaningless and recommend the use of Forward Reference Rate instead of Current Market Price. For example, a put option will be in the money if the strike
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of an option is the total value of the option, less the intrinsic value. It partly arises from the uncertainty of future price movements of the underlying. A component of the time value also arises from the unwinding of the discount rate between now and the expiry date. In the case of a European
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Delta is more than moneyness, with the (percent) standardized moneyness in between. Thus a 25 Delta call option has less than 25% moneyness, usually slightly less, and a 50 Delta "ATM" call option has less than 50% moneyness; these discrepancies can be observed in prices of binary options and
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This section outlines moneyness measures from simple but less useful to more complex but more useful. Simpler measures of moneyness can be computed immediately from observable market data without any theoretical assumptions, while more complex measures use the implied volatility, and thus the
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While moneyness is a function of both spot and strike, usually one of these is fixed, and the other varies. Given a specific option, the strike is fixed, and different spots yield the moneyness of that option at different market prices; this is useful in option pricing and understanding the
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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 (or forward) price of the asset. This quantified notion of moneyness is most
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the correct moneyness. The percent moneyness is the implied probability that the derivative will expire in the money, in the risk-neutral measure. Thus a moneyness of 0 yields a 50% probability of expiring ITM, while a moneyness of 1 yields an approximately 84% probability of expiring ITM.
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In the log simple moneyness, ATM corresponds to 0, while ITM is positive and OTM is negative, and corresponding levels of ITM/OTM corresponding to switching sign. Note that once logs are taken, moneyness in terms of forward or spot differ by an additive factor (log of discount factor), as
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option, the option cannot be exercised before the expiry date, so it is possible for the time value to be negative; for an American option if the time value is ever negative, you exercise it (ignoring special circumstances such as the security going ex dividend): this yields a
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of the underlying asset. Unlike previous inputs, volatility is not directly observable from market data, but must instead be computed in some model, primarily using ATM implied volatility in the Black–Scholes model. Dispersion is proportional to volatility, so
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expires ITM, as these are complementary events). Switching spot and strike also switches these conventions, and spot and strike are often complementary in formulas for moneyness, but need not be. Which convention is used depends on the purpose. The sequel uses
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The above measures are independent of time, but for a given simple moneyness, options near expiry and far from expiry behave differently, as options far from expiry have more time for the underlying to change. Accordingly, one may incorporate time to maturity
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In (call) simple moneyness, ATM corresponds to moneyness of 1, while ITM corresponds to greater than 1, and OTM corresponds to less than 1, with equivalent levels of ITM/OTM corresponding to reciprocals. This is linearized by taking the log, yielding the
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Buying an ITM option is effectively lending money in the amount of the intrinsic value. Further, an ITM call can be replicated by entering a forward and buying an OTM put (and conversely). Consequently, ATM and OTM options are the main traded ones.
1197: 1318: 1052:. Standardized moneyness is measured in standard deviations from this point, with a positive value meaning an in-the-money call option and a negative value meaning an out-of-the-money call option (with signs reversed for a put option). 269:
For example, with an "at the money" call stock option, the current share price and strike price are the same. Exercising the option will not earn the seller a profit, but any move upward in stock price will give the option value.
317:(OTM) option has no intrinsic value. A call option is out of the money when the strike price is above the spot price of the underlying security. A put option is out of the money when the strike price is below the spot price. 616:. Conversely, given market data at a given point in time, the spot is fixed at the current market price, while different options have different strikes, and hence different moneyness; this is useful in constructing an 301:(ITM) option has positive intrinsic value as well as time value. A call option is in the money when the strike price is below the spot price. A put option is in the money when the strike price is above the spot price. 1028: 131:, which is the ratio of spot (or forward) to strike, or the reciprocal, depending on convention. A particularly important measure of moneyness is the likelihood that the derivative will expire in the money, in the 320:
With an "out of the money" call stock option, the current share price is less than the strike price so there is no reason to exercise the option. The owner can sell the option, or wait and hope the price changes.
438:. The condition of being a change of variables is that this function is monotone (either increasing for all inputs, or decreasing for all inputs), and the function can depend on the other parameters of the 942: 201:
with a strike at $ 80 is out-of-the-money (80 − 100 = −20 < 0). Conversely, a call option with a $ 120 strike is out-of-the-money and a put option with a $ 120 strike is in-the-money.
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There are two slightly different definitions, according to whether one uses the current price (spot) or future price (forward), specified as "at the money spot" or "at the money forward", etc.
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where moneyness increases if spot decreases relative to strike. These can be switched by changing sign, possibly with a shift or scale factor (e.g., the probability that a put with strike
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This definition is abstract and notationally heavy; in practice relatively simple and concrete moneyness functions are used, and arguments to the function are suppressed for clarity.
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Since an option will rarely be exactly at the money, except for when it is written (when one may buy or sell an ATM option), one may speak informally of an option being
169:. (Standard deviations refer to the price fluctuations of the underlying instrument, not of the option itself.) Another measure closely related to moneyness is the 883:
into moneyness. Since dispersion of Brownian motion is proportional to the square root of time, one may divide the log simple moneyness by this factor, yielding:
2726: 664:, and correspond to not changing coordinates, instead using the raw prices as measures of moneyness; the corresponding volatility surface, with coordinates 2638: 696:, with analogous forward simple moneyness. Conventionally the fixed quantity is in the denominator, while the variable quantity is in the numerator, so 712:
for different options at a given spot, such as when constructing a volatility surface. A volatility surface using coordinates a non-trivial moneyness
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for valuing options (either in currency (dollar) value or in implied volatility), and changing from spot (or forward, or strike) to moneyness is a
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This effectively normalizes for time to expiry – with this measure of moneyness, volatility smiles are largely independent of time to expiry.
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In order for this function to reflect moneyness – i.e., for moneyness to increase as spot and strike move relative to each other – it must be
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All of these are observables except for the implied volatility, which can computed from the observable price using the Black–Scholes formula.
285:; "near the money" may narrowly refer specifically to the nearest the money strike. Conversely, one may speak informally of an option being 2432: 2007: 2437: 1044:
the current forward price is above the strike price. Thus the moneyness is zero when the forward price of the underlying equals the
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is the same as the current spot price of the underlying security. An at-the-money option has no intrinsic value, only time value.
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in each case. This is often small, so the quantities are often confused or conflated, though they have distinct interpretations.
583:(put moneyness). Somewhat different formalizations are possible. Further axioms may also be added to define a "valid" moneyness. 213:
The intrinsic value (or "monetary value") of an option is its value assuming it were exercised immediately. Thus if the current (
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will be used in the sequel. In practice, for low interest rates and short tenors, spot versus forward makes little difference.
1953: 1889: 1738: 162:, measuring how far above or below the strike price the current price is, in terms of volatility; this quantity is given by 1972: 1931: 1497: 1733:(First ed.). New Delhi: Dorling Kindersly (India) Pvt Ltd, licensees of Pearson Education in South Asia. p. 60. 2594: 1763: 1060:
The standardized moneyness is closely related to the auxiliary variables in the Black–Scholes formula, namely the terms
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As these are all in units of standard deviations, it makes sense to convert these to percentages, by evaluating the
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moneyness – as spot increases, moneyness increases – and is the same direction as using call Delta as moneyness.
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While the spot is often used by traders, the forward is preferred in theory, as it has better properties, thus
360: 1676: 1381: 452: 1456:, or the risk-neutral likelihood that the option will expire ITM, with numéraire cash (the risk-free asset); 85:
If the derivative would be worthless if expiring with the underlying at its current price, it is said to be
749: 1329: 2807: 2345: 2199: 1993: 1192:{\displaystyle d_{\pm }={\frac {\ln \left(F/K\right)\pm (\sigma ^{2}/2)\tau }{\sigma {\sqrt {\tau }}}}.} 2914: 2663: 2604: 2426: 617: 356: 2708: 2519: 1884:. Lecture Notes in Economics and Mathematical Systems (Paperback ed.). Berlin: Springer-Verlag. 1728: 1668: 1606: 1313:{\displaystyle m={\frac {\ln(F/K)}{\sigma {\sqrt {\tau }}}}={\tfrac {1}{2}}\left(d_{-}+d_{+}\right),} 613: 173:
of a call or put option. There are other proxies for moneyness, with convention depending on market.
155: 67: 1427: 2827: 2822: 567:), with at least one of these strictly monotone, and have opposite direction: either increasing in 345: 1590:) is the (risk-neutral) "likelihood of expiring in the money", and thus the theoretically correct 2777: 2477: 2447: 2422: 2305: 2146: 2078: 1672: 439: 349: 434:
with input the spot price (or forward, or strike) and output a real number, which is called the
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And if the current underlying price and strike price are equal, the derivative is said to be
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in terms of moneyness, rather than absolute price. The most basic of these measures is
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this corresponds to the difference between the median and mean (respectively) of
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Difference in the price of an underlying asset and its derivative's strike price
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the implied volatility. Drift is the mean, with the corresponding median (50th
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the higher the value at exercise, hence why Delta is higher than moneyness.
217:) price of the underlying security (or commodity etc.) is above the agreed ( 2668: 2442: 2370: 2350: 2310: 2179: 2151: 2141: 2083: 1922:
Option Volatility & Pricing: Advanced Trading Strategies and Techniques
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Intuitively speaking, moneyness and time to expiry form a two-dimensional
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of these quantities is somewhat subtle, and consists of changing to a
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with a strike of $ 80 is in-the-money (100 − 80 = 20 > 0). A
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has positive intrinsic value (and is called "in the money"), while a
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expires ITM is one minus the probability that a call with strike
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price of the option is greater than the Forward Reference Rate.
2888: 1903:(4th ed.). New York : New York Institute of Finance. 1037:(forward), and measures moneyness in standard deviation units. 446:(concretely the ATM implied volatility), yielding a function: 396:
hence is 110, then a call struck at 110 is ATMF but not ATM.
43: 35: 1466:) is the percentage corresponding to standardized moneyness; 1055: 937:{\displaystyle \ln \left(F/K\right){\Big /}{\sqrt {\tau }}.} 1438:. In brief, these are interpreted (for a call option) as: 139:
of expiring in the money, which is the forward value of a
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This rough classification can be quantified by various
16:"In the money" redirects here. For the poker term, see 1263: 1040:
In words, the standardized moneyness is the number of
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has zero intrinsic value (and is "out of the money").
1569:{\displaystyle N(d_{-})<N(m)<N(d_{+})=\Delta .} 1500: 1384: 1332: 1211: 1097: 965: 889: 800: 752: 455: 143:
with the given strike, and is equal to the auxiliary
62:. Moneyness is firstly a three-fold classification: 1730:
Financial Derivatives- The Currency and Rates Factor
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The standardized moneyness is the average of these:
1919: 1827:, Section 5.3.1, Choice of Moneyness Measure, pp. 1568: 1405: 1367: 1312: 1191: 1022: 936: 868: 785: 497: 1882:Stochastic Implied Votality: A Factor-Based Model 947:This measure does not account for the volatility 869:{\displaystyle \ln \left(F/K\right)=\ln(S/K)+rT.} 208: 2906: 442:, notably time to expiry, interest rates, and 2001: 532:is the implied volatility. The forward price 1754: 704:for a single option and varying spots, and 363:. Unsourced material may be challenged and 2008: 1994: 1819: 1817: 1815: 1813: 1795: 1793: 1791: 1789: 193:with a strike of $ 100 is at-the-money. A 1917: 1854: 1841: 1677:Itō's lemma for geometric Brownian motion 1056:Black–Scholes formula auxiliary variables 383:Learn how and when to remove this message 1962: 1898: 1867: 1705: 1703: 1675:), and is the same correction factor in 1605:This corresponds to the asset following 1406:{\displaystyle \sigma {\sqrt {\tau }}/2} 34:is the relative position of the current 2833:Power reverse dual-currency note (PRDC) 2773:Constant proportion portfolio insurance 1810: 1786: 498:{\displaystyle M(S,K,\tau ,r,\sigma ),} 2907: 2015: 1940: 1879: 1824: 1800: 1710: 324: 66:If the derivative would have positive 1989: 1870:), who uses spot rather than forward. 1773: 1726: 1700: 786:{\displaystyle \ln \left(F/K\right).} 512:is the spot price of the underlying, 413: 2768:Collateralized debt obligation (CDO) 1717:, 11.2 How Can We Define Moneyness?) 1368:{\displaystyle d_{-}<m<d_{+},} 536:can be computed from the spot price 361:adding citations to reliable sources 328: 1946:Principles of Financial Engineering 1452:) is the (Future Value) price of a 648:and the simplest call moneyness is 308: 181:Suppose the current stock price of 135:. It can be measured in percentage 38:(or future price) of an underlying 13: 1613:the risk-free rate, and diffusion 1560: 1491:is monotonic (since it is a CDF): 627: 575:(call moneyness) or decreasing in 244: 14: 2931: 1901:Options as a Strategic Investment 1487:These have the same ordering, as 116:importantly used in defining the 2887: 1948:(2nd ed.). Academic Press. 1421:cumulative distribution function 636:The simplest (put) moneyness is 333: 724:(with respect to the moneyness 292: 249: 158:. This can also be measured in 112: 2595:Year-on-year inflation-indexed 1899:McMillan, Lawrence G. (2002). 1860: 1847: 1834: 1720: 1648:The meaning of the factor of ( 1554: 1541: 1532: 1526: 1517: 1504: 1241: 1227: 1165: 1144: 851: 837: 589: 489: 459: 209:Intrinsic value and time value 1: 2605:Zero-coupon inflation-indexed 1693: 692:which is known as the (spot) 408: 1637:the real-world probability. 1378:differing only by a step of 620:, or more simply plotting a 7: 2808:Foreign exchange derivative 2200:Callable bull/bear contract 1918:Natenberg, Sheldon (1994). 722:relative volatility surface 674:absolute volatility surface 10: 2936: 1656:is relatively subtle. For 618:implied volatility surface 176: 15: 2882: 2841: 2760: 2717: 2709:Stock market index future 2613: 2490: 2398: 2261: 2170: 2107: 2041: 2032: 2023: 1963:Tompkins, Robert (1994). 1880:Häfner, Reinhold (2004). 1669:geometric Brownian motion 1607:geometric Brownian motion 1323:and they are ordered as: 2828:Mortgage-backed security 2823:Interest rate derivative 2798:Equity-linked note (ELN) 2783:Credit-linked note (CLN) 1679:. The interpretation of 1434:with specific choice of 1088:, which are defined as: 660:These are also known as 305:(minus any commission). 74:today, it is said to be 2778:Contract for difference 2079:Risk-free interest rate 1761:At the Money Definition 1673:log-normal distribution 540:and the risk-free rate 520:is the time to expiry, 2560:Forward Rate Agreement 1803:, Definition 3.12, p. 1570: 1426:for these values. The 1407: 1369: 1314: 1193: 1035:standardized moneyness 1024: 956:by volatility yields: 938: 870: 787: 638:fixed-strike moneyness 559:(equivalently forward 499: 399: 46:) with respect to the 2920:Derivatives (finance) 2788:Credit default option 2132:Employee stock option 1571: 1408: 1370: 1315: 1194: 1048:, when the option is 1033:This is known as the 1025: 939: 871: 788: 633:Black–Scholes model. 614:Black–Scholes formula 563:which is monotone in 516:is the strike price, 500: 156:Black–Scholes formula 2742:Inflation derivative 2727:Commodity derivative 2699:Single-stock futures 2689:Normal backwardation 2679:Interest rate future 2520:Conditional variance 2026:Derivative (finance) 1727:Chugh, Aman (2013). 1498: 1432:risk-neutral measure 1382: 1330: 1209: 1095: 1050:at-the-money-forward 963: 887: 798: 750: 745:log simple moneyness 650:fixed-spot moneyness 453: 357:improve this section 133:risk-neutral measure 18:In the money (poker) 2894:Business portal 2747:Property derivative 1042:standard deviations 716:and time to expiry 440:Black–Scholes model 424:change of variables 325:Spot versus forward 160:standard deviations 2752:Weather derivative 2737:Freight derivative 2719:Exotic derivatives 2639:Commodities future 2326:Intermarket spread 2089:Synthetic position 2017:Derivatives market 1766:2012-06-16 at the 1566: 1454:binary call option 1403: 1365: 1310: 1272: 1189: 1020: 934: 866: 783: 684:or its reciprocal 662:absolute moneyness 579:and increasing in 571:and decreasing in 495: 444:implied volatility 428:moneyness function 414:Moneyness function 287:far from the money 279:close to the money 239:boundary condition 141:binary call option 121:volatility surface 54:, most commonly a 2915:Options (finance) 2902: 2901: 2803:Equity derivative 2793:Credit derivative 2761:Other derivatives 2732:Energy derivative 2694:Perpetual futures 2575:Overnight indexed 2525:Constant maturity 2486: 2485: 2433:Finite difference 2366:Protective option 1965:Options Explained 1955:978-0-12-373574-4 1891:978-3-540-22183-8 1770:, Cash Bauer 2012 1740:978-81-317-7433-5 1592:percent moneyness 1393: 1271: 1257: 1254: 1184: 1181: 1015: 1012: 929: 420:coordinate system 393: 392: 385: 283:nearest the money 2927: 2892: 2891: 2664:Forwards pricing 2438:Garman–Kohlhagen 2039: 2038: 2010: 2003: 1996: 1987: 1986: 1978: 1974:978-0-33362807-2 1959: 1942:Neftçi, Salih N. 1937: 1933:978-1-55738486-7 1925: 1914: 1895: 1871: 1864: 1858: 1851: 1845: 1838: 1832: 1821: 1808: 1797: 1784: 1777: 1771: 1758: 1752: 1751: 1749: 1747: 1724: 1718: 1707: 1643:vertical spreads 1575: 1573: 1572: 1567: 1553: 1552: 1516: 1515: 1412: 1410: 1409: 1404: 1399: 1394: 1389: 1374: 1372: 1371: 1366: 1361: 1360: 1342: 1341: 1319: 1317: 1316: 1311: 1306: 1302: 1301: 1300: 1288: 1287: 1273: 1264: 1258: 1256: 1255: 1250: 1244: 1237: 1219: 1198: 1196: 1195: 1190: 1185: 1183: 1182: 1177: 1171: 1161: 1156: 1155: 1140: 1136: 1132: 1112: 1107: 1106: 1029: 1027: 1026: 1021: 1016: 1014: 1013: 1008: 1002: 1001: 997: 993: 973: 943: 941: 940: 935: 930: 925: 923: 922: 916: 912: 908: 875: 873: 872: 867: 847: 827: 823: 819: 792: 790: 789: 784: 779: 775: 771: 694:simple moneyness 622:volatility smile 504: 502: 501: 496: 388: 381: 377: 374: 368: 337: 329: 315:out of the money 309:Out of the money 129:simple moneyness 87:out of the money 2935: 2934: 2930: 2929: 2928: 2926: 2925: 2924: 2905: 2904: 2903: 2898: 2886: 2878: 2864:Great Recession 2859:Government debt 2837: 2813:Fund derivative 2756: 2713: 2674:Futures pricing 2649:Dividend future 2644:Currency future 2627: 2609: 2482: 2458:Put–call parity 2394: 2381:Vertical spread 2316:Diagonal spread 2286:Calendar spread 2257: 2166: 2103: 2028: 2019: 2014: 1983: 1981: 1975: 1956: 1934: 1926:. McGraw-Hill. 1911: 1892: 1875: 1874: 1865: 1861: 1852: 1848: 1839: 1835: 1822: 1811: 1798: 1787: 1783:", Investopedia 1778: 1774: 1768:Wayback Machine 1759: 1755: 1745: 1743: 1741: 1725: 1721: 1708: 1701: 1696: 1685: 1662: 1600: 1589: 1548: 1544: 1511: 1507: 1499: 1496: 1495: 1478: 1451: 1418:standard normal 1395: 1388: 1383: 1380: 1379: 1356: 1352: 1337: 1333: 1331: 1328: 1327: 1296: 1292: 1283: 1279: 1278: 1274: 1262: 1249: 1245: 1233: 1220: 1218: 1210: 1207: 1206: 1176: 1172: 1157: 1151: 1147: 1128: 1124: 1120: 1113: 1111: 1102: 1098: 1096: 1093: 1092: 1087: 1080: 1073: 1066: 1058: 1007: 1003: 989: 985: 981: 974: 972: 964: 961: 960: 924: 918: 917: 904: 900: 896: 888: 885: 884: 843: 815: 811: 807: 799: 796: 795: 767: 763: 759: 751: 748: 747: 672:(tenor) is the 630: 628:Simple examples 592: 454: 451: 450: 416: 411: 402: 389: 378: 372: 369: 354: 338: 327: 311: 295: 252: 247: 245:Moneyness terms 211: 179: 168: 153: 68:intrinsic value 24: 21: 12: 11: 5: 2933: 2923: 2922: 2917: 2900: 2899: 2897: 2896: 2883: 2880: 2879: 2877: 2876: 2871: 2869:Municipal debt 2866: 2861: 2856: 2854:Corporate debt 2851: 2845: 2843: 2839: 2838: 2836: 2835: 2830: 2825: 2820: 2815: 2810: 2805: 2800: 2795: 2790: 2785: 2780: 2775: 2770: 2764: 2762: 2758: 2757: 2755: 2754: 2749: 2744: 2739: 2734: 2729: 2723: 2721: 2715: 2714: 2712: 2711: 2706: 2701: 2696: 2691: 2686: 2681: 2676: 2671: 2666: 2661: 2656: 2654:Forward market 2651: 2646: 2641: 2636: 2630: 2628: 2626: 2625: 2620: 2614: 2611: 2610: 2608: 2607: 2602: 2597: 2592: 2587: 2582: 2577: 2572: 2567: 2562: 2557: 2552: 2547: 2542: 2537: 2535:Credit default 2532: 2527: 2522: 2517: 2512: 2507: 2502: 2496: 2494: 2488: 2487: 2484: 2483: 2481: 2480: 2475: 2470: 2465: 2460: 2455: 2450: 2445: 2440: 2435: 2430: 2420: 2415: 2410: 2404: 2402: 2396: 2395: 2393: 2392: 2378: 2373: 2368: 2363: 2358: 2353: 2348: 2343: 2338: 2333: 2331:Iron butterfly 2328: 2323: 2318: 2313: 2308: 2303: 2301:Covered option 2298: 2293: 2288: 2283: 2278: 2273: 2267: 2265: 2259: 2258: 2256: 2255: 2250: 2245: 2240: 2239:Mountain range 2237: 2232: 2227: 2222: 2217: 2212: 2207: 2202: 2197: 2192: 2187: 2182: 2176: 2174: 2168: 2167: 2165: 2164: 2159: 2154: 2149: 2144: 2139: 2134: 2129: 2124: 2119: 2113: 2111: 2105: 2104: 2102: 2101: 2096: 2091: 2086: 2081: 2076: 2071: 2066: 2061: 2056: 2051: 2045: 2043: 2036: 2030: 2029: 2024: 2021: 2020: 2013: 2012: 2005: 1998: 1990: 1980: 1979: 1973: 1960: 1954: 1938: 1932: 1915: 1909: 1896: 1890: 1876: 1873: 1872: 1859: 1855:Natenberg 1994 1846: 1844:, pp. 106–110) 1842:Natenberg 1994 1833: 1809: 1785: 1781:Near The Money 1772: 1753: 1739: 1719: 1698: 1697: 1695: 1692: 1683: 1660: 1598: 1587: 1577: 1576: 1565: 1562: 1559: 1556: 1551: 1547: 1543: 1540: 1537: 1534: 1531: 1528: 1525: 1522: 1519: 1514: 1510: 1506: 1503: 1485: 1484: 1476: 1467: 1457: 1449: 1428:interpretation 1402: 1398: 1392: 1387: 1376: 1375: 1364: 1359: 1355: 1351: 1348: 1345: 1340: 1336: 1321: 1320: 1309: 1305: 1299: 1295: 1291: 1286: 1282: 1277: 1270: 1267: 1261: 1253: 1248: 1243: 1240: 1236: 1232: 1229: 1226: 1223: 1217: 1214: 1200: 1199: 1188: 1180: 1175: 1170: 1167: 1164: 1160: 1154: 1150: 1146: 1143: 1139: 1135: 1131: 1127: 1123: 1119: 1116: 1110: 1105: 1101: 1085: 1078: 1071: 1064: 1057: 1054: 1031: 1030: 1019: 1011: 1006: 1000: 996: 992: 988: 984: 980: 977: 971: 968: 933: 928: 921: 915: 911: 907: 903: 899: 895: 892: 865: 862: 859: 856: 853: 850: 846: 842: 839: 836: 833: 830: 826: 822: 818: 814: 810: 806: 803: 782: 778: 774: 770: 766: 762: 758: 755: 720:is called the 629: 626: 591: 588: 555:and in strike 526:risk-free rate 506: 505: 494: 491: 488: 485: 482: 479: 476: 473: 470: 467: 464: 461: 458: 430:is a function 415: 412: 410: 407: 401: 398: 391: 390: 341: 339: 332: 326: 323: 310: 307: 294: 291: 275:near the money 251: 248: 246: 243: 210: 207: 178: 175: 166: 154:) term in the 151: 123:: the implied 106: 105: 94: 83: 70:if it were to 22: 9: 6: 4: 3: 2: 2932: 2921: 2918: 2916: 2913: 2912: 2910: 2895: 2890: 2885: 2884: 2881: 2875: 2872: 2870: 2867: 2865: 2862: 2860: 2857: 2855: 2852: 2850: 2849:Consumer debt 2847: 2846: 2844: 2842:Market issues 2840: 2834: 2831: 2829: 2826: 2824: 2821: 2819: 2818:Fund of funds 2816: 2814: 2811: 2809: 2806: 2804: 2801: 2799: 2796: 2794: 2791: 2789: 2786: 2784: 2781: 2779: 2776: 2774: 2771: 2769: 2766: 2765: 2763: 2759: 2753: 2750: 2748: 2745: 2743: 2740: 2738: 2735: 2733: 2730: 2728: 2725: 2724: 2722: 2720: 2716: 2710: 2707: 2705: 2702: 2700: 2697: 2695: 2692: 2690: 2687: 2685: 2682: 2680: 2677: 2675: 2672: 2670: 2667: 2665: 2662: 2660: 2659:Forward price 2657: 2655: 2652: 2650: 2647: 2645: 2642: 2640: 2637: 2635: 2632: 2631: 2629: 2624: 2621: 2619: 2616: 2615: 2612: 2606: 2603: 2601: 2598: 2596: 2593: 2591: 2588: 2586: 2583: 2581: 2578: 2576: 2573: 2571: 2570:Interest rate 2568: 2566: 2563: 2561: 2558: 2556: 2553: 2551: 2548: 2546: 2543: 2541: 2538: 2536: 2533: 2531: 2528: 2526: 2523: 2521: 2518: 2516: 2513: 2511: 2508: 2506: 2503: 2501: 2498: 2497: 2495: 2493: 2489: 2479: 2476: 2474: 2471: 2469: 2466: 2464: 2463:MC Simulation 2461: 2459: 2456: 2454: 2451: 2449: 2446: 2444: 2441: 2439: 2436: 2434: 2431: 2428: 2424: 2423:Black–Scholes 2421: 2419: 2416: 2414: 2411: 2409: 2406: 2405: 2403: 2401: 2397: 2390: 2386: 2382: 2379: 2377: 2376:Risk reversal 2374: 2372: 2369: 2367: 2364: 2362: 2359: 2357: 2354: 2352: 2349: 2347: 2344: 2342: 2339: 2337: 2334: 2332: 2329: 2327: 2324: 2322: 2319: 2317: 2314: 2312: 2309: 2307: 2306:Credit spread 2304: 2302: 2299: 2297: 2294: 2292: 2289: 2287: 2284: 2282: 2279: 2277: 2274: 2272: 2269: 2268: 2266: 2264: 2260: 2254: 2251: 2249: 2246: 2244: 2241: 2238: 2236: 2233: 2231: 2230:Interest rate 2228: 2226: 2225:Forward start 2223: 2221: 2218: 2216: 2213: 2211: 2208: 2206: 2203: 2201: 2198: 2196: 2193: 2191: 2188: 2186: 2183: 2181: 2178: 2177: 2175: 2173: 2169: 2163: 2160: 2158: 2155: 2153: 2152:Option styles 2150: 2148: 2145: 2143: 2140: 2138: 2135: 2133: 2130: 2128: 2125: 2123: 2120: 2118: 2115: 2114: 2112: 2110: 2106: 2100: 2097: 2095: 2092: 2090: 2087: 2085: 2082: 2080: 2077: 2075: 2072: 2070: 2069:Open interest 2067: 2065: 2062: 2060: 2057: 2055: 2052: 2050: 2049:Delta neutral 2047: 2046: 2044: 2040: 2037: 2035: 2031: 2027: 2022: 2018: 2011: 2006: 2004: 1999: 1997: 1992: 1991: 1988: 1984: 1976: 1970: 1966: 1961: 1957: 1951: 1947: 1943: 1939: 1935: 1929: 1924: 1923: 1916: 1912: 1910:0-7352-0197-8 1906: 1902: 1897: 1893: 1887: 1883: 1878: 1877: 1869: 1868:Tompkins 1994 1863: 1856: 1850: 1843: 1837: 1830: 1826: 1820: 1818: 1816: 1814: 1806: 1802: 1796: 1794: 1792: 1790: 1782: 1776: 1769: 1765: 1762: 1757: 1742: 1736: 1732: 1731: 1723: 1716: 1712: 1706: 1704: 1699: 1691: 1689: 1682: 1678: 1674: 1670: 1666: 1659: 1655: 1651: 1646: 1644: 1638: 1636: 1633:probability, 1632: 1628: 1624: 1620: 1616: 1612: 1608: 1603: 1597: 1593: 1586: 1582: 1563: 1557: 1549: 1545: 1538: 1535: 1529: 1523: 1520: 1512: 1508: 1501: 1494: 1493: 1492: 1490: 1482: 1475: 1471: 1468: 1465: 1461: 1458: 1455: 1448: 1444: 1441: 1440: 1439: 1437: 1433: 1429: 1425: 1422: 1419: 1414: 1400: 1396: 1390: 1385: 1362: 1357: 1353: 1349: 1346: 1343: 1338: 1334: 1326: 1325: 1324: 1307: 1303: 1297: 1293: 1289: 1284: 1280: 1275: 1268: 1265: 1259: 1251: 1246: 1238: 1234: 1230: 1224: 1221: 1215: 1212: 1205: 1204: 1203: 1186: 1178: 1173: 1168: 1162: 1158: 1152: 1148: 1141: 1137: 1133: 1129: 1125: 1121: 1117: 1114: 1108: 1103: 1099: 1091: 1090: 1089: 1084: 1077: 1070: 1063: 1053: 1051: 1047: 1043: 1038: 1036: 1017: 1009: 1004: 998: 994: 990: 986: 982: 978: 975: 969: 966: 959: 958: 957: 955: 954:standardizing 950: 945: 931: 926: 913: 909: 905: 901: 897: 893: 890: 882: 876: 863: 860: 857: 854: 848: 844: 840: 834: 831: 828: 824: 820: 816: 812: 808: 804: 801: 780: 776: 772: 768: 764: 760: 756: 753: 746: 740: 738: 734: 729: 727: 723: 719: 715: 711: 707: 703: 699: 695: 691: 687: 683: 679: 675: 671: 667: 663: 659: 655: 651: 647: 643: 639: 634: 625: 623: 619: 615: 609: 607: 602: 598: 587: 584: 582: 578: 574: 570: 566: 562: 558: 554: 551:in both spot 550: 545: 543: 539: 535: 531: 527: 523: 519: 515: 511: 492: 486: 483: 480: 477: 474: 471: 468: 465: 462: 456: 449: 448: 447: 445: 441: 437: 433: 429: 425: 421: 406: 397: 387: 384: 376: 366: 362: 358: 352: 351: 347: 342:This section 340: 336: 331: 330: 322: 318: 316: 306: 302: 300: 290: 288: 284: 280: 276: 271: 267: 265: 262:(ATM) if the 261: 257: 242: 240: 235: 230: 228: 224: 220: 216: 206: 202: 200: 196: 192: 188: 184: 174: 172: 165: 161: 157: 150: 146: 142: 138: 134: 130: 126: 122: 119: 114: 109: 103: 99: 95: 92: 88: 84: 81: 77: 73: 69: 65: 64: 63: 61: 57: 53: 49: 45: 41: 37: 33: 29: 19: 2669:Forward rate 2580:Total return 2468:Real options 2371:Ratio spread 2351:Naked option 2311:Debit spread 2142:Fixed income 2084:Strike price 2063: 1982: 1964: 1945: 1921: 1900: 1881: 1862: 1849: 1836: 1775: 1756: 1744:. Retrieved 1729: 1722: 1687: 1680: 1664: 1657: 1653: 1649: 1647: 1639: 1634: 1630: 1626: 1622: 1614: 1610: 1604: 1595: 1591: 1584: 1580: 1578: 1488: 1486: 1473: 1469: 1463: 1459: 1446: 1442: 1423: 1415: 1377: 1322: 1201: 1082: 1075: 1068: 1061: 1059: 1049: 1046:strike price 1039: 1034: 1032: 948: 946: 880: 877: 744: 741: 736: 732: 730: 725: 721: 717: 713: 709: 705: 701: 697: 693: 689: 685: 681: 677: 673: 669: 665: 661: 657: 653: 649: 645: 641: 637: 635: 631: 610: 605: 600: 596: 593: 585: 580: 576: 572: 568: 564: 560: 556: 552: 546: 541: 537: 533: 529: 521: 517: 513: 509: 507: 435: 431: 427: 417: 403: 394: 379: 370: 355:Please help 343: 319: 314: 312: 303: 299:in the money 298: 296: 293:In the money 286: 282: 278: 274: 272: 268: 264:strike price 260:at the money 259: 253: 250:At the money 231: 212: 203: 185:is $ 100. A 180: 163: 148: 144: 128: 117: 110: 107: 101: 98:at the money 97: 90: 86: 79: 76:in the money 75: 48:strike price 31: 25: 2600:Zero Coupon 2530:Correlation 2478:Vanna–Volga 2336:Iron condor 2122:Bond option 1825:Häfner 2004 1801:Häfner 2004 1713:, pp.  1711:Neftçi 2008 1609:with drift 590:Conventions 221:) price, a 137:probability 113:definitions 56:call option 2909:Categories 2874:Tax policy 2590:Volatility 2500:Amortising 2341:Jelly roll 2276:Box spread 2271:Backspread 2263:Strategies 2099:Volatility 2094:the Greeks 2059:Expiration 1694:References 1619:percentile 1579:Of these, 409:Definition 234:time value 199:put option 191:put option 125:volatility 60:put option 52:derivative 2565:Inflation 2515:Commodity 2473:Trinomial 2408:Bachelier 2400:Valuation 2281:Butterfly 2215:Commodore 2064:Moneyness 1746:18 August 1561:Δ 1513:− 1479:) is the 1436:numéraire 1391:τ 1386:σ 1339:− 1285:− 1252:τ 1247:σ 1225:⁡ 1179:τ 1174:σ 1169:τ 1149:σ 1142:± 1118:⁡ 1104:± 1010:τ 1005:σ 979:⁡ 927:τ 894:⁡ 835:⁡ 805:⁡ 757:⁡ 487:σ 475:τ 436:moneyness 426:. Thus a 373:June 2008 344:does not 42:(e.g., a 32:moneyness 2704:Slippage 2634:Contango 2618:Forwards 2585:Variance 2545:Dividend 2540:Currency 2453:Margrabe 2448:Lattices 2427:equation 2413:Binomial 2361:Strangle 2356:Straddle 2253:Swaption 2235:Lookback 2220:Compound 2162:Warrants 2137:European 2117:American 2109:Vanillas 2074:Pin risk 2054:Exercise 1944:(2008). 1764:Archived 1621:) being 652:, where 640:, where 549:monotone 118:relative 2623:Futures 2243:Rainbow 2210:Cliquet 2205:Chooser 2185:Barrier 2172:Exotics 2034:Options 1715:458–460 1661:− 1631:implied 1625:− 1599:− 1594:, with 1588:− 1450:− 1079:− 524:is the 365:removed 350:sources 177:Example 28:finance 2684:Margin 2550:Equity 2443:Heston 2346:Ladder 2296:Condor 2291:Collar 2248:Spread 2195:Binary 2190:Basket 1971:  1952:  1930:  1907:  1888:  1737:  528:, and 508:where 256:option 219:strike 72:expire 2555:Forex 2510:Basis 2505:Asset 2492:Swaps 2418:Black 2321:Fence 2180:Asian 2042:Terms 1829:85–87 1671:(the 1481:Delta 171:Delta 58:or a 50:of a 44:stock 40:asset 36:price 2389:Bull 2385:Bear 2127:Call 1969:ISBN 1950:ISBN 1928:ISBN 1905:ISBN 1886:ISBN 1748:2014 1735:ISBN 1663:and 1536:< 1521:< 1350:< 1344:< 1074:and 668:and 606:call 348:any 346:cite 232:The 223:call 215:spot 195:call 187:call 2157:Put 1688:and 1652:/2) 1635:not 728:). 400:Use 359:by 313:An 297:An 277:or 258:is 254:An 227:put 189:or 183:IBM 102:ATM 91:OTM 80:ITM 26:In 2911:: 2387:, 2147:FX 1812:^ 1805:42 1788:^ 1702:^ 1615:σ, 1611:r, 1222:ln 1115:ln 1081:= 1067:= 976:ln 891:ln 832:ln 802:ln 754:ln 690:S, 658:S. 646:K, 624:. 561:F, 542:r. 289:. 241:. 104:). 93:); 82:); 30:, 2429:) 2425:( 2391:) 2383:( 2009:e 2002:t 1995:v 1977:. 1958:. 1936:. 1913:. 1894:. 1866:( 1857:) 1853:( 1840:( 1831:) 1823:( 1807:) 1799:( 1779:" 1750:. 1709:( 1684:+ 1681:d 1665:m 1658:d 1654:τ 1650:σ 1627:σ 1623:r 1596:d 1585:d 1583:( 1581:N 1564:. 1558:= 1555:) 1550:+ 1546:d 1542:( 1539:N 1533:) 1530:m 1527:( 1524:N 1518:) 1509:d 1505:( 1502:N 1489:N 1477:+ 1474:d 1472:( 1470:N 1464:m 1462:( 1460:N 1447:d 1445:( 1443:N 1424:N 1401:2 1397:/ 1363:, 1358:+ 1354:d 1347:m 1335:d 1308:, 1304:) 1298:+ 1294:d 1290:+ 1281:d 1276:( 1269:2 1266:1 1260:= 1242:) 1239:K 1235:/ 1231:F 1228:( 1216:= 1213:m 1187:. 1166:) 1163:2 1159:/ 1153:2 1145:( 1138:) 1134:K 1130:/ 1126:F 1122:( 1109:= 1100:d 1086:2 1083:d 1076:d 1072:1 1069:d 1065:+ 1062:d 1018:. 999:) 995:K 991:/ 987:F 983:( 970:= 967:m 949:σ 932:. 920:/ 914:) 910:K 906:/ 902:F 898:( 881:τ 864:. 861:T 858:r 855:+ 852:) 849:K 845:/ 841:S 838:( 829:= 825:) 821:K 817:/ 813:F 809:( 781:. 777:) 773:K 769:/ 765:F 761:( 737:K 735:/ 733:F 726:M 718:τ 714:M 710:S 708:/ 706:K 702:K 700:/ 698:S 688:/ 686:K 682:K 680:/ 678:S 670:T 666:K 656:= 654:M 644:= 642:M 601:K 597:K 581:K 577:S 573:K 569:S 565:S 557:K 553:S 538:S 534:F 530:σ 522:r 518:τ 514:K 510:S 493:, 490:) 484:, 481:r 478:, 472:, 469:K 466:, 463:S 460:( 457:M 432:M 386:) 380:( 375:) 371:( 367:. 353:. 167:2 164:d 152:2 149:d 147:( 145:N 100:( 89:( 78:( 20:.

Index

In the money (poker)
finance
price
asset
stock
strike price
derivative
call option
put option
intrinsic value
expire
definitions
volatility surface
volatility
risk-neutral measure
probability
binary call option
Black–Scholes formula
standard deviations
Delta
IBM
call
put option
call
put option
spot
strike
call
put
time value

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