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101 Concepts for the Level I Exam

Concept 92: Exercise Value, Time Value, and Moneyness of an Option


Moneyness refers to whether an option is in the money or out of the money.

  • If immediate exercise of the option would result in positive payoff, then option is in the money.
  • If immediate exercise would result in loss, then the option is out of the money.
  • If immediate exercise would result in neither a gain nor a loss, then the option is at the money.
  Call Option Put Option
In-the-money S > X S < X
At-the-money S = X S = X
Out-of-the-money S < X S > X

Exercise value of an option is the maximum of zero or the amount that the option is in the money.

Time value of an option is the amount by which the option premium exceeds the exercise value.

  • Prior to expiration an option also has time value in addition to exercise value.
  • When an option reaches expiration, the time value is zero.