NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
Which of the following best describes an option that is out-of-the-money for a call buyer?
A call is out-of-the-money when its strike price is higher than the current spot price, because exercising would give no intrinsic value. Strike below spot makes it in-the-money, and strike equal to spot makes it at-the-money.
- AStrike price is lower than the current spot price
- BStrike price is higher than the current spot priceCorrect
- CStrike price equals the current spot price
- DPremium is higher than the intrinsic value
Explanation
A call is out-of-the-money when exercising would not be profitable on intrinsic terms, which occurs when the strike is above the spot price. Strike below spot means in-the-money, and equal means at-the-money.
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