Moneyness

Moneyness is a measure used in equity derivatives to understand the profitability of an option. Its extensively used to compare volatilities across different underlyings.

Moneyness can be measured in standard deviation or percentage terms.

In percentage terms it is simply (Strike Price/Spot Price)* 100.

We can also define Forward moneyness, which is (Strike Price/Forward Price)* 100 and gives us an idea of how much the option is in-the-money compared to its forward price

The logs of Spot moneyness and Forward moneyness are also used by some traders.

In Standard deviation terms it can be measured in various ways :

• ln(Strike Price/Fwd Price) / (ATMVol * sqrt(Term) )
• ln(Strike Price/Fwd Price)/(sqrt(Term))

It can be interpreted as the number of standard deviations it would take for the forward to reach the strike price. The ATMVol term in the first formula takes into account the skew of the volatility surface. Term is the number of days until expiry.

Trading software vendor products

• Orc
• Numerix
  
• OpenLink
  
• Reuters - JRisk Kondor+
• Misys - Opics , summit
• Calypso Technology: Calypso
• Murex: Asset Manager, MXG2000, Mx.3
• Openlink: Endur & Findur
• Principia Partners: Principia
• royalblue: Fidessa
• Sophis: Risque & Value
• Sungard: Front Arena
• Temenos: Globus & T24
• Trema: Finance Suite / Finance KIT
• Wall Street Systems: WSS
• TrayPort
  
• SuperDerivatives
• FFastFill