9.3 Lessons learnt

  • A Call option is “in the money” when the underlying security’s current market price is higher than the call option’s strike price. Once a call option is in the money, it is possible to exercise the option to buy a security for less than the current market price. Or the owner can sell the call option to another buyer before expiration at fair market value. For example, you hold the call option with a strike price of 8 on share XYZ and the share price at currently 10, at that moment we can say that the call option is 2 points “in the money”. 
 
  • A Put option is “in the money” when the underlying security’s current market price is below the strike price. The put owner may exercise the option, selling the stock at the strike price. Or the owner can sell the put option to another buyer before expiration at fair market value. For example,  you hold the put option with a strike price of 10 on share XYZ, and the share price at current is 8, at that moment we can say that the put option is 2 points in the money.
 
  • ”Out of the money” is just the opposite when you hold a put option ”out of the money” that means that the strike price lies above the current market price, in other words, the options have no value. In case you hold a call option out of the money the strike price of the option lies below the current market price.