What Is Near The Money?

"Near the money" refers to an options contract whose strike price is close to the current market price of the corresponding underlying security. "Close to the money" is an alternative phrase, designating the same situation.

The Basics of Near The Money

An options contract is said to be "near the money" when the strike price and underlying security's price are close. While there is no official figure for "close," if that difference is usually less than 50 cents, the options contract is considered near the money. For example, an option with a current market value of $20 and a strike price of $19.80 would be considered near the money, as the difference between the strike price and the market value is only 20 cents.

A contract is considered "at the money" when the strike price is equal to the market price of the underlying security.

At or near the money options contract typically cost more (i.e., they have a higher premium) than out of the money options, in which the underlying instrument's price is significantly higher or lower than the strike price.