Series 7 practice questioneasyOptions — In/Out/At the Money
ABC stock is trading at $42. An ABC 45 call option would be considered:
- AOut-of-the-money✓ Correct answer
- BAt-the-money
- CIn-the-money
- DAt parity
Explanation
Why A — Out-of-the-money
A call option is out-of-the-money when the stock price is below the strike price. Since ABC is trading at $42, which is below the $45 strike price, the call has no intrinsic value and is out-of-the-money. It would only have time value.
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