sTraderZ.com · Moneyness
Moneyness — ITM / ATM / OTM
💎 Option Price = Intrinsic Value + Time Value
Intrinsic Value
Call: max(0, Price − Strike)
Put: max(0, Strike − Price)
OTM options have no intrinsic value. The ITM portion is retained until expiry.
Time Value (Extrinsic)
Premium − Intrinsic Value
Decays daily via Theta. = 0 at expiry. Highest for ATM & long-dated options.
📊 Example: AAPL Call, stock at $180
| Strike | Moneyness | Intrinsic Value | Time Value | Total Premium | Delta |
|---|---|---|---|---|---|
| $170 | ITM ($10 in the money) | $10,00 | $2,20 | $12,20 | 0,82 |
| $175 | ITM ($5 in the money) | $5,00 | $3,10 | $8,10 | 0,68 |
| $180 | ATM | $0,00 | $3,45 | $3,45 | 0,52 |
| $185 | OTM ($5 out of the money) | $0,00 | $1,28 | $1,28 | 0,32 |
| $190 | OTM ($10 out of the money) | $0,00 | $0,41 | $0,41 | 0,14 |
🎯 Delta as a Probability Proxy
Delta ≈ estimated probability that the option ends ITM at expiry. A rule of thumb that works surprisingly well in practice — especially for strike selection in short premium strategies.
Delta as an ITM probability is a Black-Scholes approximation. With skew, dividends, or upcoming earnings, the actual value can differ significantly. Not investment advice.