Near the Money
Definition of 'Near the Money'
There are two main types of near-the-money options: calls and puts. A call option gives the holder the right to buy the underlying asset at a specified price, called the strike price. A put option gives the holder the right to sell the underlying asset at a specified price.
The value of a near-the-money option is determined by a number of factors, including the current market price of the underlying asset, the strike price, the time to expiration, and the volatility of the underlying asset.
Near-the-money options are often used by investors who are looking to make a quick profit. If the underlying asset moves in the desired direction, the option can be exercised for a profit. However, if the underlying asset moves in the opposite direction, the option will expire worthless.
Near-the-money options can also be used by investors to hedge their positions. For example, an investor who owns a stock may buy a near-the-money put option to protect themselves from a decline in the stock price.
Near-the-money options are typically more expensive than out-of-the-money options, but they offer a higher chance of being profitable. As a result, near-the-money options are often used by experienced traders who are willing to take on more risk in exchange for the potential for higher returns.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.