CFA Practice Question
Consider a call option with an exercise price of $105 on a stock that is worth $95. Calculate the moneyness of the option.
A. the call is $10 in the money
B. the call is $10 out of the money
C. none of these answers.
Explanation: A call option is out of the money when the exercise price exceeds the stock price. In this example, the call is $10 out of the money.
User Contributed Comments 5
| User | Comment |
|---|---|
| jpducros | sometimes there is an easy question...just to fill up your ego... |
| amyjones | What about the cost of the option? |
| chester21 | Agree with AmyJones - The cost of the option premium should be include.... |
| nike | When calculating moneyness of an option you should simply use formula exercise price - stock price. No option cost is needed (it's a sunk cost - you already have the option). |
| thebkr7 | These questions make me feel smart... Too bad there's only 1 in 240 |