Lesson 1.4 — Moneyness, and Why Saber Lives OTM

Hook

Somewhere on a deep in-the-money option there is a yield number that, if you were reckless enough to annualize it, prints something like 912%. Not a typo, not a meme stock — just the arithmetic doing exactly what you asked, on a contract sitting deep in the money. A number like that should stop you cold, because in this business a yield that good is never a gift. It is a tell. The premium is enormous, sure. But almost none of it is income — most of it is your own money walking out one door and back in the other, wearing a yield's clothing. This whole lesson is about that lie, and about the one line Saber refuses to cross because of it.

The Concept

Start with the one relationship that governs everything else: moneyness — where the stock is trading relative to the strike, the single fact that decides whether exercising the contract right now is worth anything at all.

There are three positions, and they mirror between the two contract types. A contract is in the money (ITM) when exercising it this instant would put cash in your pocket. For a put — the right to sell at the strike — that happens when the stock sits BELOW the strike: you would sell high, at the strike, into a market that has fallen beneath it. For a call — the right to buy at the strike — it is the reverse: ITM when the stock is ABOVE the strike, because you would buy low while the market trades higher. A contract is out of the money (OTM) when exercising would be pointless — a put with the stock above its strike, a call with the stock below. And at the money (ATM) is the hinge between them: the stock sitting roughly at the strike.

Now split the premium into its two honest halves. Intrinsic value is what exercising is worth right now — the strike-to-stock gap in your favor, times 100 — and it is exactly zero for any OTM contract. Time value (or extrinsic value) is everything in the premium above intrinsic: the part that is actually the price of time and probability. That is not a throwaway phrase. As Lesson 1.1 put it, an option is a contract on time and probability — and time value is that contract priced in dollars.

Here is the collapse, and it is the whole lesson. An OTM contract has zero intrinsic, so its premium is ALL time value — every dollar of it is the price of time and probability, every dollar is income you were paid to take on the obligation. An ITM contract is the opposite: its premium is MOSTLY intrinsic — dollars that are just the strike-to-stock gap, handed back and forth at assignment, not rent you get to keep. Baseball had a number for exactly this trap: the batting average, flashy and familiar and a measure of the wrong thing, telling you a hitter got a hit but never whether he produced a run. An ITM contract's fat premium is that same bait — a big number that measures the wrong thing, because most of it was never income at all. Call it income and annualize it, and the arithmetic turns to nonsense.

Which is why Saber scores OTM income trades only — the income framing collapses in the money, so Remora deliberately shows no Saber Score on ITM contracts. Read "deliberately." This is design, not inability. A score whose entire job is to grade income refuses to grade a number that isn't income — and to the allocator, a tool that declines to rate the wrong trade is a risk control, not a limitation. Out of the money is not a corner Saber got stuck in; it is where the whole selling business lives.

Real Numbers

Take the flagship: the AAPL $290 put, $1.957 a share, 30 days to expiration — DTE — quoted while it is out of the money. Watch the same contract walk through all three states of moneyness as the stock moves. These spot prices are illustrations, not live quotes.

AAPL at $300 — OTM. The right to sell at $290 is worthless to exercise when the stock fetches $300 in the open market. Intrinsic value is zero, so the entire premium is time value: $1.957 × 100 = $195.70, and all $195.70 of it is income — the price of 30 days of time and probability.

AAPL at $290 — ATM. The stock is sitting right at the strike. The contract is at the money, the hinge.

AAPL at $280 — ITM by $10. Now the right to sell at $290 while the stock trades $280 is worth $10 a share the instant you exercise: intrinsic value is $10 × 100 = $1,000. And that $1,000 sets a floor — an ITM contract cannot quote below its intrinsic, or you could exercise it immediately for the gap. So the quote here is AT LEAST $1,000. Notice what did NOT happen: the $1.957 premium belonged to the OTM state. Once the contract goes ITM, its price is a different animal, floored by that $1,000 of intrinsic.

That $1,000 is the trap in plain sight. It is not income — it is the strike-to-stock gap, dollars the market hands you at exercise and takes right back in the shares. Treat it as a rental yield and annualize it, and you get the nonsense the lesson opened on. You do not have to trust me on the size of the lie: ask Remora to quote an ITM contract and it refuses to price a Saber yield at all, recording why in its own note — for an ITM contract the figure "would inflate to nonsense (e.g. TYE 912% on a deep-ITM call)." That 912% is the product telling on itself.

The call side mirrors it exactly. A $290 call with the stock at $300 is $10 in the money — the right to buy at $290 while the market is $300 is worth $10 a share, intrinsic $10 × 100 = $1,000. Same gap, same handed-back dollars, same collapse of the income story.

One last look back. Everything Saber actually scored in Lesson 0.1 — the AAPL 290P at 84, the GME 22P at 31 — sat out of the money. That was never an accident. It is the only ground where the income framing holds.

In Remora

The OTM rule is enforced before you ever lay eyes on a row. Open Screen ▾ → Options Screener and run a cash-secured put screen. Every strike that comes back sits out of the money by construction — not because you filtered for it, but because the screener rejects any non-OTM strike before it ever scores one, under the blunt reason "Call/Put Strike Not OTM." The in-the-money strikes never reach the table.

ScreenshotOptions Screener puts tab, result rows visible, illustrating that every listed strike is OTM

The single-contract path holds the same line: ask for a quote on an ITM contract and every Saber field comes back empty. And wherever a null renders anywhere in Remora, it shows as a dash — "—" — the interface's way of saying there is no honest number to print here.

The Mistake

Picture the seller with AAPL at $280, scrolling for the fattest premium on the chain. The $290 put is quoting north of $10 a share — "a thousand-dollar-plus premium on one contract!" — better than five times the $195.70 the same put paid him out of the money. He sells it for the "yield." But $1,000 of that quote is intrinsic: the strike-to-stock gap the market hands straight back the moment he is assigned, not a dollar of rent. He didn't find the highest-paying trade on the chain — he found the biggest number, and got paid mostly in his own collateral. That is batting-average thinking wearing a moneyness disguise: the fat figure looks like production and measures almost nothing. The tell was the size of it.

Mantra

Saber only scores what sits out of the money.

Check

Q1. The stock is at $300. Is the AAPL $290 put in the money, at the money, or out of the money — and is the AAPL $290 call the same or different?

Q2. Why does Remora deliberately show no Saber Score on an in-the-money contract?

Q3. AAPL is at $280 and the $290 put quotes at least $10 a share. How many of those dollars are intrinsic value — and are they income?

Q4. A friend: "The in-the-money put pays five times the premium of the out-of-the-money one — obviously the better yield." In one sentence, what is the Saber reply?