Out-of-the-money

“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 — 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