Answer-In which of the following situation will a call option will be called “out the money”?

Question

Answer-In which of the following situation will a call option will be called &ldquo;out the money&rdquo;?

Accepted Answer

In an option contract, an option will be exercised only when the option holder is in a favorable position with respect to the strike price as per the options contract vis-agrave-vis the market price of the underlying asset. As such, the option holder calculates his potential profit or loss to him if he exercises the option. This potential profit or loss is referred to as the money-ness of the option.    There can be three scenarios     Money-ness  Call Option i.e. option to Buy  Put Option i.e. option to Sell    In the Money i.e. profit and hence option will be exercised  Market Price or spot pricegt Strike Price  Market Price or spot price lt Strike Price    At the Money indifferent  Market price or Spot Price  Strike Price    Out of the Money i.e. loss and hence option will not be exercised  Market Price or spot price lt Strike Price  Market Price or spot price gt Strike Price       Note ndash for calculating the money-ness of option contract the option premium is not considered however, for the total profit calculation, the option premium will also be taken into account.

Money-ness	Call Option (i.e. option to Buy)	Put Option (i.e. option to Sell)
In the Money (i.e. profit and hence option will be exercised)	Market Price (or spot price)> Strike Price	Market Price (or spot price) < Strike Price
At the Money (indifferent)	Market price (or Spot Price) = Strike Price
Out of the Money (i.e. loss and hence option will not be exercised)	Market Price (or spot price) < Strike Price	Market Price (or spot price) > Strike Price

In which of the following situation will a call option will be called “out the money”?

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