Article

In-the-money Option
June 07 , 2012

This needs understanding of options and concept of 'strike price' of an option. If the strike price is such, that the option looks very likely to be useful, the option is said to be in-the-money. Only a drastic, adverse change in the price of the underlying could render the option worthless. Thus, in case of call option, it is in-the-money if strike price is much lower than current price. In case of put option, it is in-the-money if strike price is much higher than current price.

For instance, say the prevailing price of an Infosys share is Rs 2000. If I take an option to buy Infosys share at Rs 1000 three months from today, it is an in-the-money option (in this case call option). After all, unless Infosys share prices falls sharply in the interim, this option is likely to very useful. Obviously, such an option is likely to be more expensive than if the strike price is closer to current price or above it.

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