Products & Their RisksQuestion 88 of 398
A call option with a strike price of $50 is held while the underlying stock trades at $57. This call is:
a.Out-of-the-money by $7
b.In-the-money by $7
c.At-the-money
d.Worthless because it is past expiration
Explanation
A call is in-the-money when the stock price is above the strike price. Here the stock at $57 exceeds the $50 strike by $7, so the call has $7 of intrinsic value. A call is out-of-the-money when the stock is below the strike and at-the-money when the two are equal.
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