Moneyness, expiry and payoff curves: options vs futures
Two options on the same stock can behave completely differently depending on their strike and expiry. This lesson covers the vocabulary that describes that, and how options compare with simply holding shares or futures.
Moneyness
| Call | Put | Value | |
|---|---|---|---|
| In the money (ITM) | Strike below spot | Strike above spot | Intrinsic + time value |
| At the money (ATM) | Strike near spot | Strike near spot | All time value, the most of any strike |
| Out of the money (OTM) | Strike above spot | Strike below spot | Time value only |
Deep ITM options behave almost like the shares (delta near 1). Far OTM options are cheap lottery tickets: low delta, low probability, high percentage moves. ATM options carry the most time value and the most gamma.
Reading an options chain
Brokers list options in a chain: one row per strike, calls on the left, puts on the right, and a row of expiry dates along the top. US platforms write dates month first, so 11/20 means 20 November, not the 11th of the 20th month. An “M” marks the standard monthly expiry (the third Friday) and a “Q” a quarterly one. The number of days left matters as much as the date, because time value decays faster as it shrinks.
| Calls | Puts | |||||
|---|---|---|---|---|---|---|
| Bid | Ask | Delta | Strike | Bid | Ask | Delta |
| 10.12 | 10.22 | 0.98 | 90 | 0.01 | 0.10 | -0.02 |
| 5.54 | 5.64 | 0.84 | 95 | 0.42 | 0.52 | -0.16 |
| 3.66 | 3.76 | 0.70 | 97.5 | 1.03 | 1.13 | -0.30 |
| 2.18 | 2.28 | 0.52 | 100 | 2.05 | 2.15 | -0.48 |
| 1.16 | 1.26 | 0.34 | 102.5 | 3.53 | 3.63 | -0.66 |
| 0.54 | 0.64 | 0.20 | 105 | 5.40 | 5.50 | -0.80 |
| 0.05 | 0.15 | 0.04 | 110 | 9.90 | 10.00 | -0.96 |
Payoff curves
Shares and futures have linear payoffs: every point counts equally, up or down. Options are non-linear. That kink at the strike is what gamma measures, and it is what makes options useful for shaping risk.
Expiries
- Monthly: standard US equity options expire on the third Friday of the month. Monthly expiry (“OPEX”) often brings heavy volume as positions roll and hedges unwind.
- Quarterly: the March, June, September and December expiries coincide with index futures expiry, sometimes called triple witching.
- Weeklies and 0DTE: the S&P 500 now has options expiring every trading day. Zero-days-to-expiry options make up a large share of index option volume, and their very high gamma can amplify intraday moves.
Exercise and settlement
- American options (most single stocks) can be exercised any time before expiry. European options (SPX, most indices) only at expiry.
- Physically settled options deliver shares. Cash settled options (SPX) pay the difference in cash.
Key takeaway
Strike decides how the option behaves, expiry decides how fast it changes. Choose both to match the move you expect and the time you expect it in.
Educational content only, not financial advice. Options involve significant risk and are not suitable for everyone.