Unit 2 of 15 · Beginner

Moneyness and the clock

In one read

Moneyness describes where the strike sits relative to the current price. A call is in-the-money (ITM) when price is above the strike, at-the-money (ATM) when they are level, and out-of-the-money (OTM) when price is below; for a put the directions flip. Moneyness is not fixed — it moves every time the underlying moves, so an OTM call becomes ATM then ITM as price rises past its strike. Expiry is the contract's deadline: the date after which the right simply ends. Picking a strike and an expiry is a statement about how far you think price could travel and by when. This unit places three strikes around a generic price, shows how each one's moneyness changes as price moves, and frames the clock as the second axis every option is priced on alongside the strike.

Moneyness is where the strike sits; expiry is when it ends

Every option has two coordinates: a strike (the price it transacts at) and an expiry (the date the right ends). Moneyness is the relationship between the strike and where price is right now.

For a call:

  • In-the-money (ITM) — price is above the strike; the right to buy low has real value.
  • At-the-money (ATM) — price sits at the strike.
  • Out-of-the-money (OTM) — price is below the strike; the right to buy high is not worth exercising yet.

A put is the mirror: it is ITM when price is below the strike. The key fact is that moneyness is not a label you set once — it changes every time the underlying moves.

A worked example

GENCO trades at $100. Line up three call strikes:

  • The $95 call is ITM — you could buy at $95 while price is $100.
  • The $100 call is ATM.
  • The $105 call is OTM — buying at $105 makes no sense while price is $100.

Now let GENCO drift to $106. The $105 call has crossed from OTM to ITM; the $100 call is now ITM; the $95 call is deeper ITM. Nothing about the contracts changed — price moved through the strikes, and their moneyness moved with it.

Expiry is the second axis. A $105 call with a month left has time for GENCO to travel; the same strike expiring tomorrow has almost none. Choosing a strike and an expiry is choosing how far and how soon — the two together, never one alone.

See it in kestrel

Moneyness only means something against price that actually moves through the strikes. Run a real session and watch it travel:

npx kestrel.markets sim fomc-rate-decision-whipsaw

That runs a deterministic simulation over a generic index session — managed licensed data, no wall time, no signup, no card — and prints a certified proof URL. Kestrel names strikes and expiries as first-class terms, so "the $105 call, a month out" is something the tool can hold and grade. Recompute the whole record on your own machine, byte for byte:

npx kestrel.markets certify https://kestrel.markets/proof/art_d29415f0cf502f4a218a9cba

Keep the strikes one command away: drop the kestrel.markets MCP server into your client and the next session opens where this one left off — no account in between.

Recompute it

Every claim in this unit recomputes from a certified proof — no account, no card.

/proof/art_d29415f0cf502f4a218a9cba
Keep readingWhy you pay what you pay

Agent twin: /education/options/opt-moneyness-and-expiry/content.md