Moneyness: Difference between revisions
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“[[Moneyness]]” is a measure of how well a bargain you struck is working out, right now. If it was a good investment, you’re [[in the money]]. If it wasn’t, you’re [[out of the money]]. | {{g}}“[[Moneyness]]” is a measure of how well a bargain you struck is working out, right now. If it was a good investment, you’re [[in the money]]. If it wasn’t, you’re [[out of the money]]. | ||
The cleanest examples hail from the world of betting (also known, for those in the three-piece suits, as [[derivatives]]). | The cleanest examples hail from the world of betting (also known, for those in the three-piece suits, as [[derivatives]]). | ||
If you bet your buddy £100 that England would beat Germany in a football match, there are three minutes left of injury time England are trailing 6-0, you are badly [[out-of-the-money]]. You haven’t ''exactly'' lost the bet — not ''yet'' — but if you wanted to call off the bet, your chum would be asking “well, what’s it worth to you, old fellow? | If you bet your buddy £100 that England would beat Germany in a football match, there are three minutes left of injury time England are trailing 6-0, you are badly [[out-of-the-money]]. You haven’t ''exactly'' lost the bet — not ''yet''<ref>Technically, there is still some [[time value]] to your [[option]].</ref> — but if you wanted to call off the bet, your chum would be asking “well, what’s it worth to you, old fellow? You are [[short an option]]. | ||
By contrast, your compadre is [[in-the-money]] by a similar amount. All the more galling because, when you started, you were both [[at-the-money]]. But, really, what were you thinking? | By contrast, your compadre is [[in-the-money]] by a similar amount. All the more galling because, when you started, you were both [[at-the-money]]. But, really, what were you thinking, expecting England to beat Germany? Do you know ''nothing'' about football? | ||
''[[Incipit tragœdia]]''. | |||
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Latest revision as of 06:47, 27 September 2019
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“Moneyness” is a measure of how well a bargain you struck is working out, right now. If it was a good investment, you’re in the money. If it wasn’t, you’re out of the money.
The cleanest examples hail from the world of betting (also known, for those in the three-piece suits, as derivatives).
If you bet your buddy £100 that England would beat Germany in a football match, there are three minutes left of injury time England are trailing 6-0, you are badly out-of-the-money. You haven’t exactly lost the bet — not yet[1] — but if you wanted to call off the bet, your chum would be asking “well, what’s it worth to you, old fellow? You are short an option.
By contrast, your compadre is in-the-money by a similar amount. All the more galling because, when you started, you were both at-the-money. But, really, what were you thinking, expecting England to beat Germany? Do you know nothing about football?
See also
- Flawed asset
- The moneyness hokey-cokey: in-the-money, out-of-the-money and at-the-money
- Options
References
- ↑ Technically, there is still some time value to your option.