In The Money Put Options

In The Money Put Option

In The Money Put Option

In the Money Puts


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Definition of "In The Money Put Option"

A put option is said to be an in the money put when the current market price of the stock is below the strike price of the put. It is "in the money" because the holder of this put 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 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'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 PUT Option": If the price of YHOO stock is at $37.75, then a put option with a strike price above $37.75 is an example of an "in the money put".

Why are they in the money? They are in the money because those put options already have an intrinsic value. If you have the right to sell YHOO at $40 and the current market price is $37.75, then that YHOO $40 put is in the money $2.25. If you had that put option and you had to exercise it, you could buy shares of YHOO at $37.75 and sell them immediately at the strike price of $40 and you would pocket the $2.25 profit.

Likewise the YHOO $45 put is in the money $7.25 and the YHOO $50 put is in the money $12.25. This in the money value establishes a minimum or floor price for that option.

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

Another example of an "In the Money PUT Option": 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.

Why are they in the money? They are in the money because those options already have an intrinsic 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 option 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 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.

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