A call option is "in the money" when the

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy the underlying security at the exercise price. If the market price of the underlying security is higher than the exercise price, it means that the holder of the call option can buy the security at a lower price and sell it at a higher price, making a profit. Therefore, the option is "in the money" and has intrinsic value. Option B is incorrect because in this case, the holder of the call option would not make a profit by exercising the option since the market price is equal to the exercise price. Option C is incorrect because the option would not provide any value to the holder if the market price is below the exercise price. Option D is incorrect because the premium paid for an option is not a determining factor in whether the option is "in the money" or not.

A Call Option Is "In the Money" When the