Products & Their RisksQuestion 89 of 398
A put option with a strike price of $40 is held while the underlying stock trades at $45. This put is:
a.In-the-money by $5
b.At-the-money
c.Out-of-the-money by $5
d.In-the-money by $85
Explanation
A put is in-the-money when the stock is below the strike and out-of-the-money when the stock is above the strike. Here the $45 stock is above the $40 strike, so the put is out-of-the-money by $5 and has no intrinsic value; exercising it would make no economic sense.
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