The current market price of a share of CSCO stock is $22. If a call option on this stock has a strike price of $20, the call
A) is out of the money.
B) is at the money.
C) sells for a higher price than if the market price of CSCO stock is $21.
D) is out of the money and sells for a higher price than if the market price of CSCO stock is $21.
E) is in the money and sells for a higher price than if the market price of CSCO stock is $21.

Question

Quizplus · Accepted Answer

A call option is "in the money" when the market price of the stock is above the strike price, which is the case here ($22 > $20). Additionally, the value of a call option increases as the underlying stock's price increases, so it would sell for a higher price when the market price is $22 compared to $21.

The Current Market Price of a Share of CSCO Stock