Question

Call options are considered to be in the money when what condition is met, and who typically benefits or wants their options to be in the money? Could you provide an example of this concept?

Answer 1

Call options are considered in the money when the strike price is lower than the current market price. Holders of call options benefit from being in the money as they can make a profit.

Step-by-step explanation:

Call options are considered to be in the money when the strike price of the option is lower than the current market price of the underlying asset. This means that if the option were to be exercised, the buyer would make a profit. Typically, the holder of the call option benefits or wants their options to be in the money, as they have the right to buy the underlying asset at a lower price and can sell it at a higher price, earning a profit.

For example, let's say John buys a call option to purchase 100 shares of Company XYZ at a strike price of $50, and the current market price of the XYZ stock is $60. If the option is in the money, John can exercise the option, buy the shares at $50 each, and then sell them immediately at $60, making a profit of $10 per share.