The term near-the-money refers to an option that is close to having intrinsic value based on the strike price of the option relative to the market price of the underlying asset. The concept of moneyness helps an investor to understand the position of an underlying asset relative to an option's strike price.
When an investor holds an option they are provided with the right, but not an obligation, to buy or sell the underlying asset at the strike price on or before the contract's expiration date. In the case of a call option, the holder has the right to buy the underlying asset, while a put option confers the right to sell the underlying.
Also referred to as close-to-the-money, an option that is near-the-money has an exercise price that is relatively close to the current market price of the underlying asset. An option that is near-the-money will trade at a premium that accounts only for the time value of the option itself, since it can increase in value over time.
However, if the option were exercised immediately, the holder would not make a profit on the transaction since the option is still out-of-the-money. For example, a near-the-money call option might have a strike price that is slightly above the current market price of the underlying asset. Conversely, a near-the-money put option would have a strike price that is slightly below the current market price of the underlying asset.
While options can also be said to be "at-the-money," it is rare the price of the underlying asset is the same as the strike price on an option. Instead, the option will spend more time in a state that is near-the-money.