Series 7 practice questioneasyOptions — In/Out/At the Money
DEF stock is trading at $38. A DEF 40 put option would be considered:
- AOut-of-the-money
- BAt-the-money
- CIn-the-money✓ Correct answer
- DExpired
Explanation
Why C — In-the-money
A put option is in-the-money when the stock price is below the strike price. Since DEF is trading at $38, below the $40 strike price, the put has $2 of intrinsic value and is in-the-money. The put holder could exercise the right to sell at $40 when the stock is only worth $38.
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