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In the Money
Practical Law Glossary Item 7-386-5185 (Approx. 3 pages)
Glossary
In the Money
Phrase used to describe a party with a net positive marked-to-market balance owing (though not necessarily due) from a counterparty under one or more financial transactions, such as a swap or other derivative transaction.
For example, parties to an ISDA® Master Agreement do not typically settle their trades on a daily or even weekly basis. Rather, the parties run debit and credit balances with one another (usually backed by the daily or weekly exchange of margin collateral). Whenever the aggregate value of all trade positions under a particular trade or group of trades entered into under the agreement is positive for a party, that party is said to be in the money on that trade or group of trades.
This term is also commonly used in the context of options. In a situation where the exercise or strike price for an option is, in the case of:
- A call option, below the market price of the asset or commodity underlying the option, which would permit the party exercising the call option to buy the underlying asset or commodity at a lower price and sell it at the (higher) market price for a profit, such option is in the money to that party.
- A put option, above the market price of the asset or commodity underlying the option, which would permit the party exercising the put option to sell the underlying asset or commodity at a higher price and buy it at the (lower) market price for a profit, such option is in the money to that party.