In The Money Call Options

In The Money Call

In The Money Call Option

In The Money Calls


Related Terms:

Definition of "In The Money Call Option":

A call option is said to be an in the money call when the current market price of the stock is above the strike price of the call option. It is an "in the money call" because the holder of the call has the right to buy the stock below its current market price. When you have the right to buy anything below the current market price, then that right has value. That value is equal to at least the amount that your purchase price (strike price) is below the market price. In the world of call options, your call is "in the money" when the strike price is less than the current market price of the stock. The amount that your call's strike price is below the current stock price is called its "intrinsic value" because you know it is worth at least that amount. This compares to an out of the money call option which is call where the strike price of the call is above the stock's current market price.

Definition of "in the money put":

For a put option, which is the right to sell a stock at a certain price, to be an in the money put then the current market price of the stock would be below the strike price of the put option. It is "in the money" because the holder of this put option has the right to sell the stock above its current market price. When you have the right to sell anything above its current market price, then that right has value. That value is equal to at least the amount that your sales price is above the market price. In the world of put options, your put option is "in the money" when the strike price of your put is above the current market price of the stock. The amount that your put option's strike price is above the current stock price is called its "intrinsic value" because you know it is worth at least that amount.

Example of an "In the Money CALL": If the price of YHOO stock is at $37.75, then a call with a strike price below $37.75 is an example of an "in the money call".

Why are they in the money? They are in the money because those call options already have an intrinsic value. If you have the right to buy YHOO at $35 and the current market price is $37.75, then that YHOO $35 call is in the money $2.75. If you had that option and you had to exercise it, you could buy shares of YHOO at $35 and sell them immediately in the open market for $37.75 and pocket the $2.75 profit.

Likewise the YHOO $30 call is in the money $7.75 and the YHOO $25 call is in the money $12.75. This in the money value establishes a minimum or floor price for that option.

If YHOO is at $37.50, then all of the call options with a strike price of $38 and higher are out of the money.

Example of an "In the Money PUT": If the price of MSFT stock is at $37.50, then all of the put options with strike prices at $38 and above are in the money puts.

Why are they in the money? They are in the money because those options already have an intrinisc value. If you have the right to sell MSFT at $40 and the current market price is $37.50, then that MSFT $40 put is in the money $2.50. If you had that put and you had to exercise it, you could sell shares of MSFT at $40 and buy them immediately in the open market for $37.50 and pocket the $2.50 profit.

Likewise the MSFT $45 put is an in the money $7.50 and the MSFT $50 put is in the money $12.50. This in the money value establishes a minimum or floor price for that option.

If MSFT is at $37.50, then all of the put options with a strike price of $37 and lower are out of the money.

Start learning about what are call options now! What are call options

Options Trading

Options Resources and Links

Options trade on the Chicago Board of Options Exchange and the prices are reported by the Option Pricing Reporting Authority (OPRA):