Near the Money

Near the money (NTM) is a term used in options trading to describe an option with a strike price that is close to the current market price of the underlying asset. This means that the option has a high probability of being exercised, and therefore has a higher value than an option with a strike price that is further away from the current market price.

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.