SIE practice questioneasyOptions — ITM/OTM/ATM
A put option with a strike price of $40 when the underlying stock is trading at $35 is:
- AWithout any value
- BIn the money✓ Correct answer
- CAt the money
- DOut of the money
Explanation
Why B — In the money
A put is in-the-money (ITM) when the stock price is BELOW the strike price. With a $40 strike and $35 stock price, the put holder can sell at $40 something worth $35 — that $5 difference is intrinsic value. A put is out-of-the-money when stock price is above the strike, and at-the-money when they are equal.
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