DATE: December 17, 2012
Can you explain the relationship between an in-the-money option, at-the-money option and out-of-the-money option and their not so direct ties to profit?
The terms in-the-money option, at-the-money option and out-of-the-money option describe the relationship of the strike price of an option to the current stock price. For example, with a stock price of $55, a 50 strike call is in-the-money because its strike price is below the stock price of $55. Although these terms describe the relative price relationship of different options at a specific point in time, they DO NOT imply anything about profit or loss as an option shifts from in-, at-, or out-of-the-money. To learn more on this topic, view this week's segment of "Ask the Institute."