In the derivatives market, the relationship between the price of the underlying asset and the strike price of the contract has important implications. This relationship is an important determinant of the value of the contract and, as expiration approaches, will be a deciding factor when considering whether the options contract should be 澳洲幸运5官方开奖结果体彩网:exercised.

Moneyness

The term 澳洲幸运5官方开奖结果体彩网:moneyness describes how far away the underlying security's price is from the option contract's strike price. The contract can be in the money, at the money, or out of the money. An in-the-money option has 澳洲幸运5官方开奖结果体彩网:intrinsic value, which means that there can be value extracte🌟d by exercising the contract. Out-of-the-money and at-the-money options have zero intrinsic v🐠alue.

For example, if the stock is trading $51 and the strike price of a 澳洲幸运5官方开奖结果体彩网:call option is $50, the investor can exercise the call, buy the stock for $50, sell it in the market at $51, and extract $1 of intrinsic value. The value of the contract that is not intrinsic value, is called extrinsic or 澳洲幸运5官方开奖结果体彩网:time value. So, if the 50-strike call is trading $1.50 with the stock at $51, it has $1 of i🌠ntrinsic value and 50 cents of ꦯtime value.

What Happens When the Strike Price Is Reached?

For 澳洲幸运5官方开奖结果体彩网:call options, intrinsic value is the difference between the underlying stock's price and the option contract's strike price. For 澳洲幸运5官方开奖结果体彩网:put options, it is the difference between the option contract'sꦚ strike price and the underlying stock's price.

In the case of botജh call and put options, if the respective differences between the option strike price and stock price value are๊ negative (the contracts are out of the money), the intrinsic value is zero.

In addition, when the underlying stock's price reaches the option contract's 澳洲幸运5官方开奖结果体彩网:strike price, the stock option is said to be at the money. When a contract is at the money, the intrinsic value of the call and put option would be zero as well because, if you exercise the call option (or put option) contract and then sell (or buy) the underlying security, there is no gain or loss on the trade other than transact♓ion costs.

Call vs. Put Options

Assume an investor buys one call option contract on stock ABC with a strike price of $50 in May and a July expiration. Further, let's suppose that it's the day that the option contract expires (or the third Friday of July). At open, the stock is trading at $49 and the call option is out of the money—it does not have any 澳洲幸运5官方开奖结果体彩网:intrinsic value because the stock price is trading below the strike price. However, at the close of the trading day, the stock price s꧑its at $50.

When the stock price equals the strike price, the option contract has zero intrinsic value and is 澳洲幸运5官方开奖结果体彩网:at the money. Therefore,🔯 there is really no reason to exercise the contract when it can be bought in the market for the same price. The option contract is not exercised and expires worthless.

On the other hand, assume another trader bought one put option contract on stock ABC with a strike price of $50 and a July expiration. On expiration day, if the stock is trading at $49 (below the strike price) in the morning, the option is in the money because it has $🦂1 o♊f intrinsic value of one dollar ($50 - $49).

However, let's say that the stock rallies and at the end of the trading day, it closes at $50. The option contract is at the money because the stock price is equal to the strike price and has zero intrinsic value. Therefore, the put option also expires without being exercised because exercising it does not monetize any value.