In-the-Money, At-the-Money, Out-of-the-Money
Chapters in this video
- 0:00 Call UP, Put DOWN: the ultimate cheat code
- 0:57 What moneyness means: profitable exercise right now
- 1:25 Ivy the investor and call options
- 2:15 The call option exam trap: check the type first
- 3:26 Sam the student and put options
- 4:57 The moneyness matrix: intrinsic value, time value, expiration
- 5:51 Why out-of-the-money options still have time value
- 6:41 Rapid-fire exam recap
What this video covers
- How moneyness is defined: whether exercising an option right now would be profitable
- The "Call UP" rule, and why a call is in-the-money when market price is above the strike price
- The "Put DOWN" rule, and why a put is in-the-money when market price is below the strike price
- Why checking the option type first is your defense against exam questions that flip calls and puts in the same stem
- Which states have zero intrinsic value, and why at-the-money options are not "borderline profitable"
- Why out-of-the-money options can still carry time value before expiration even though they have no intrinsic value
- Which options get automatically exercised at expiration, and which expire worthless
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