Moneyness: Difference between revisions
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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? | ||
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? | ||
{{moneyness}} | {{moneyness}} | ||
Revision as of 14:07, 25 February 2019
“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?
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?
See also
- Flawed asset
- The moneyness hokey-cokey: in-the-money, out-of-the-money and at-the-money
- Options
- ↑ Technically, there is still some time value to your option.