Moneyness (In, At and Out of the Money)

Moneyness describes where the market rate sits relative to an option's strike. An option is in the money when exercising it would be better than dealing at the current rate, out of the money when it would be worse, and at the money when the two are effectively the same. It is a description of the contract's position right now, and it changes every time the market rate does. Two details catch people out. At the money can mean measured against the spot rate or against the forward rate for the option's expiry, and in currency markets the forward is the more common reference, so the same contract can be described differently by two desks working to different conventions. And moneyness says nothing about whether an option was worth buying: one deep in the money still cost a premium that reflected that advantage at the time, and one out of the money is not evidence of a mistake. The exchange or the counterparty defines which reference its own quotes use, and that definition is a thing to read rather than assume.