Moneyness is the relationship between the strike price of an option and the underlying asset's price. The term is used to describe whether an option is in the money (ITM), at the money (ATM), or out of the money (OTM).
ITM options have strike prices below the underlying asset's price for calls, and above the underlying asset's price for puts. ATM options have strike prices at the same level as the underlying asset's price. OTM options have strike prices above the underlying asset's price for calls, and below the underlying asset's price for puts.
The moneyness of an option affects the option's premium, as well as the likelihood of the option being exercised. ITM options have higher premiums than OTM options, as they are more likely to be exercised. ATM options have premiums that are somewhere in between ITM and OTM options.
How is option moneyness calculated?
Option moneyness is calculated by subtracting the strike price from the current stock price, and then dividing that number by the strike price. If the resulting number is positive, the option is in the money; if it is negative, the option is out of the money; and if it is zero, the option is at the money.
What is a good implied volatility percentage for options?
There is no definitive answer, as the "right" implied volatility percentage will vary depending on the specific options trade you are looking at and your own personal trading strategy. However, as a general guideline, many experienced options traders target an implied volatility percentage that is at least 10-15% higher than the current historical volatility percentage. This allows for a decent profit potential while still providing some level of downside protection in case the underlying security's price movement is not as large as expected.
Why is delta 0 and 1?
It is important to note that Delta measures the rate of change in the price of the underlying asset, not the price itself. Therefore, Delta will always be between 0 and 1.
The reason Delta is between 0 and 1 is because it is a derivative of the underlying asset's price. The underlying asset's price can never go below 0 or above 1 (because it is bounded by 0 and 1), so the Delta can never go below 0 or above 1 either.
How do you choose a strike price for call options?
There are a few different factors to consider when choosing a strike price for call options. First, you need to consider the current market price of the underlying security. If the current market price is below the strike price, then the option will be "out of the money" and will have a lower chance of expiring in the money. If the current market price is above the strike price, then the option will be "in the money" and will have a higher chance of expiring in the money.
You also need to consider your own personal level of risk tolerance. If you are willing to take on more risk, then you may want to choose a lower strike price. If you are not as willing to take on risk, then you may want to choose a higher strike price.
Finally, you need to consider the time frame in which you expect the underlying security to move. If you expect the security to move quickly, then you may want to choose a lower strike price. If you expect the security to move more slowly, then you may want to choose a higher strike price.
Which is better ITM or ATM?
Both ITM (in-the-money) and ATM (at-the-money) options have their own advantages and disadvantages.
ITM options are more expensive than ATM options because they have intrinsic value. This means that they will have a higher probability of expiring in-the-money. However, they also have a higher risk of being assigned early if the underlying stock price moves against the option holder.
ATM options are less expensive than ITM options because they have less intrinsic value. This means that they will have a lower probability of expiring in-the-money. However, they also have a lower risk of being assigned early if the underlying stock price moves against the option holder.