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I am reading a book on options and came across this paragraph:
"Call options with a strike price that is below the stock price are OTM, and their premium is all time value. After the stock moves above the strike price, it is referred to as ITM, and has intrinsic value along with the time value."
DEFINITION of 'In The Money'
1. For a call option, when the option's strike price is below the market price of the underlying asset.
Essentially the author is saying the same thing twice so both scenarios are ITM..............?
Can you help answer these questions from other members on NexusFi?
Call Option OTM, is when the strike price is above the underlying asset.
Price will consist of time, volatility, etc
Once the underlying asset will move above the strike price of the Call Option, then you will be ITM.
His definition is right, but the first sentence should be "above" or "Call Options" was confused with Put Option.
Matt
Optimus Futures
There is a risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
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When I think of a purchased call option I think if I got long with this call right now (exercised it, if I could) would I be out cash (OTM) or in cash (ITM) on that trade..... same with a bought put, just short from that strike/price...out or in money.
Ron
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Either way, using the terms "calls" and "puts" is needlessly ambiguous. Why not just give the terms literal meaning and say purchasing a "buy" option or purchasing a "sell" option.
A "buy" option means you have the option to buy the stock at strike price.
A "sell" option means you have the option to sell the stock at strike price.
Simple and self explanatory. No cheat sheet necessary!
Because you can sell a put and sell a call as an initial transaction!
so in your logic it would be selling a "sell" ?
Options have been traded close to the formation of the stock exchange in the USA, so the terminology makes sense.
You "call" away (take away) a stock/futures/ FX from another trader
With a "put" it gives you the right to "put", or sell, the stock/futures/fx to someone else
Thanks,
Matt
Optimus Futures
There is a risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]
Believe me, if you continue with options, your are going to find things that will seem much more confusing than the names.
Option pricing and strategies, for example, can be quite amazing.
As @mattz said, options have been in use for a very long time, and everything about them has a purpose; if something seems unclear, it is not because the people who trade them, for some pretty serious money, are confused, or don't know what they are doing....
However, I do understand the frustration, and remember it, although it was long ago now. So, just accept that it will make sense, perhaps after a lot of repetition. One trick that is available, if anything in your book is confusing, would be to just check the Wikipedia entry or Google it. Seeing it put another way may clear things up for you.
Ya...I see how it would complicate things...I'm starting to get the hang of it now.
I hear ya Actually, I follow the strategies ok...straddles, strangles, collars etc....I just kept getting hung up on the terminology...but now I see it has its purposes.
hello brags...Option Trading will take a bit more time to Understand, as well as the many ways they can be used.
I am posting a Chart of AMZN and the 540 Call Option Chart next to it for this Example.
The Notes on the Chart Describe the Important information, as the October 540 Call is OTM, as it has yet to Rise above that 540 Strike Level.
If someone would Actually Buy the 540 Call or Pay the Premium of 8.75 or $875...They would have 10 more Trading days to see if the Value would Increase for More than the $875 Paid for it, and then Sell it.
This is the Main Idea behind Directional Option Buying of Calls and Puts.
But there are Many more Strategies in Options Trading that i will Not get into, because it would be off Topic.
I Hope you can see the Chart well enough to see the details...if not try Clicking it a second time to see if it will Magnify more.
