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I have a question regarding the strike price that is given on OptionMetrics. My goal is to primarily retrieve options prices of a specific maturity with strike prices that are 20% in-the-money, at-the-money and 20% out-the-money. In order to do so I need to use the direct relationship between the strike price $K$ and the spot price $S_t$.

The exact definition as given by Investopedia.com is:

For a call option, when the option's strike price is below the market price of the underlying asset, an option is In-The-Money.

When I use the date from OptionMetrics I find that my strike price is given in the form '257000' for instance, hence with header 'Strike price times 1000'. However the index price (market price) at that particular point in time is about 9580. This large difference holds for all observations.

How do I then calculate the amount that the option is in- or out-of-the money?

I am therefore wondering whether someone has experience with working with OptionMetrics and more specific on filtrating options that are say 20% in-the-money.

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    $\begingroup$ Just to clarify: Are you seeking the general methodology for filtering the moneyness, or specifically in OptionMetrics data? $\endgroup$
    – Eli
    Sep 7, 2012 at 17:14
  • $\begingroup$ actually both - but optionmetrics data is the most important $\endgroup$
    – JohnAndrews
    Sep 11, 2012 at 21:44

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The strike price provided by OptionMetrics is simply strike x 1000, so in order to calculate moneyness of the option you have to divide the strike by 1000 and then proceed in a standard manner.

In terms of filtering the moneyness of the option, there are few options. The easiest is using VOLATILITY_SURFACE table in the OptionMetrics database.

Amount of the moneyness is measured by the delta of an option. Delta of an option is between 0% to 100%. VOLATILITY_SURFACE provides delta column along with strike for that moneyness. Given this strike you can filter the options around that strike. Just remember that these are interpolated strikes in that table.

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  • $\begingroup$ thank you - that makes sense. I was wondering whether you know a manual for starting with OptionMetrics. Hence, which adjustments (dividend interest rate) need to be performed in order to prepare the data for modelling the option prices. $\endgroup$
    – JohnAndrews
    Nov 20, 2012 at 22:38

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