A call option on a stock is said to be in the money if
A)the exercise price is higher than the stock price.
B)the exercise price is less than the stock price.
C)the exercise price is equal to the stock price.
D)the price of the put is higher than the price of the call.

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy the underlying stock at a specified exercise price. If the exercise price is less than the current market price of the stock, the call option is said to be in the money. This means that the option holder could exercise the option and make a profit by buying the stock at the exercise price and immediately selling it on the market for the higher current price. Option A is incorrect because if the exercise price is higher than the stock price, the option would be worthless because the holder could buy the stock for less on the market. Option C is also incorrect because if the exercise price is equal to the stock price, the option is said to be "at the money" and there is no intrinsic value. Option D is irrelevant because it refers to put options, not call options.

A Call Option on a Stock Is Said to Be