Need clarification regarding options "in the money"

Discussion in 'Ask any question!' started by sidgrafix, Jan 31, 2021.

  1. sidgrafix

    sidgrafix New Member

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    Hello,

    I'm new to this forum and have been searching periodically over the past year for a definitive answer on specific details of being in the money on a stock option.

    I get the fact that if I make a call and the stock price is above the strike price at expiration it is in the money or if I make a put if the stock price is below the strike price it is in the money.

    However what's not explained, diagramed or even discussed anywhere is how far past a call or put "in the right direction is it still exercisable?

    For example:
    Let's say I buy a call option with a strike price of $100 for stock XYZ with a current stock price of say $89 - option to expire in a week. One week later on expiration day stick XYZ is at $155 - is my option still in the money or did the stock blow past it making my option worthless?

    If the ladder is true and the stock blows past the "in the money" position - how do I know?

    Same in the opposite manner on say an option put..

    Is it your stuck between the different levels of calls or puts listed when you open an option strategy?

    For example:
    Stock XYZ at current stock price of $89 has option listed as Calls $90, $95, $100, $105 (let's say it continues in $5 increments up to $200 - then on the Put list $85, $80, $75 in $5 increment down to $20...

    Does that mean my first example call would only be in the money between $100 and $105 or does that not matter?

    This has been about the only thing that's confused me since day 1 trading 2 years ago.. and still to this day have not found a definitive answer anywhere.

    Hopefully someone here can answer this for me!

    Thank You
     
  2. spindr0

    spindr0 Active Member

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    American style options (equities and ETFs) can be exercised at any time. European style options (most indexes) can only be exercised at expiration.

    A call is in-the-money if the underlying's price is higher than the strike price of the call that you own.

    A put is in-the-money if the underlying's price is lower than the strike price of the put that you own.
     
    StockJock-e and Rustic1 like this.
  3. StockJock-e

    StockJock-e Brew Master
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    Good on you for looking into options.

    Used correctly to hedge positions, they can be your best friend.
     

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