Conquer FINRA 2025 – Elevate Your Financial Future with Confidence!

Disable ads (and more) with a membership for a one time $4.99 payment

Question: 1 / 280

When are calls considered to be in the money?

When the stock's market value equals the strike price

When the market value of the stock is below the strike price

When the market value of the stock is above the strike price

Calls are considered to be "in the money" when the market value of the stock exceeds the strike price of the call option. This means that if the holder of the call option were to exercise it, they would be able to buy the stock at a price lower than its current market value. This situation provides an intrinsic value to the option, allowing the holder to potentially profit from the difference. Therefore, having the market value above the strike price is a clear indicator that exercising the option would be favorable and, hence, the definition of being in the money for call options.

When the market value equals the strike price, the call option is said to be "at the money," and it does not provide a profit for exercising. With the market value below the strike price, the call is "out of the money," and there's no incentive to exercise the option since buying the stock at a higher strike price would result in an immediate loss. The choice involving the stock not supporting the option price does not pertain to the classification of the option's status as in, at, or out of the money. Hence, identifying that calls are in the money when the market value is above the strike price reflects the fundamental mechanics of options trading.

When the stock does not support the option price

Next

Report this question