Classify the following options as in the money, out of money or at the money: Op
ID: 2767365 • Letter: C
Question
Classify the following options as in the money, out of money or at the money: Option 1: IBM: current market price per share is $149. The call option expires in January 2017; Strike price $100. Option 2: FB: current market price per share is $110. The call option expires in January 2017; Strike price $120. Option 3: IBM: current market price per share is $149. The call option expires in January 2017; Strike price $100. Option 4: FB: current market price per share is $110. The call option expires in January 2017; Strike price $120.Explanation / Answer
Option-1:- In the money Option
Calls with a strike price below the current stock price are “in the money.” The further the strike price is in the money, the more expensive that option will be because it has more intrinsic value.The strike price of $100 is below than current market price of $149.
Option 2:- Out of Money Option
Calls with a strike price above the current stock price are “out of the money.” The further the strike price is out of the money the less valuable it becomes because it is less likely that the option will ever acquire intrinsic value.Strike price of $12 is less than $110 current market price.
Option 3:- Out of Money Option
Puts with a strike price below the current stock price are “out of the money.” The further the strike price is out of the money the less valuable it becomes because it is less likely that the option will ever acquire intrinsic value.The strike price of $100 is below than current market price of $149.
Option-4:- In the money Option
Puts with a strike price above the current stock price. The further the strike price is in the money, the more expensive that option will be because it has more intrinsic value.