Moneyness
How in-the-money, at-the-money and out-of-the-money strikes change a covered call's starting economics.
#Spot relative to strike
| Call state | Relationship | Intrinsic value | Covered-call implication |
|---|---|---|---|
| OTM | Spot < strike | Zero | More upside remains before the cap; premium is primarily time value. |
| ATM | Spot ≈ strike | Near zero | Little upside remains before the cap; time value is often significant. |
| ITM | Spot > strike | Spot − strike | Part of current stock value is already above the strike; assignment/settlement is more likely economically. |
#From the covered-call seller's perspective
Moneyness is not a quality score. An OTM call usually retains more upside but pays less premium. An ATM call transfers almost all upside from the current spot. An ITM call can resemble a position with a lower effective exit level and more premium, but still carries the stock's downside below that economic level.
Call intrinsic value = max(S − K, 0)#Moneyness changes
A call can move from OTM to ITM as the stock rises, or the reverse as it falls. The label describes a state at a moment; it does not determine the final outcome. Liquidity, implied volatility and remaining time still matter before expiry.