An option contract is a financial derivative that represents a holder who buys a contract sold by a writer. The moneyness of an option describes a situation that relates the strike price of a derivative to the price of the derivative's underlying security. A put option can be either out of the money, at the money or in the money. A put option buyer has the right — but not the obligation — to sell a specified quantity of the underlying security at a predetermined strike price on or before its expiration date.

On the other hand, the seller, or writer, of a put option is obligated to buy the underlying security at a predetermined strike price if the corresponding put option is exercised. A put option should only be exercised if the underlying security is in the money.

A put option is in the money when the current market price of the underlying security is below the strike price of the put option. The put option is in the money because the put option holder has the right to sell the underlying above its current market price. When there is a right to sell the underlying security above its current market price, then the right to sell has value equal to at least the amount of the sale price less the current market price.

The amount that a put option's strike price is greater than the current underlying security's price is known as intrinsic value because the put option is worth at least that amount. Dictionary Term Of The Day. A conflict of interest inherent in any relationship where one party is expected to Broker Reviews Find the best broker for your trading or investing needs See Reviews.

Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance. Become a day trader.

When is a put option considered to be "in the money"? By Investopedia April 21, — 1: Learn about how the difference between in the money and out of the money options is determined by the relationship between Learn more about the moneyness of stock options and what happens when the underlying security's price reaches the option Learn how the strike prices for call and put options work, and understand how different types of options can be exercised Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is Learn about the difficulty of trading both call and put options.

Explore how put options earn profits with underlying assets Learn what the terms "in the money" and "out of the money" mean, where the terms come from, and how investors use the terms Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums. Options are valued in a variety of different ways.

Learn about how options are priced with this tutorial. Learn more about stock options, including some basic terminology and the source of profits. In a call option, the strike price is the price at which the Trading options is not easy and should only be done under the guidance of a professional. Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.

The price at which a specific derivative contract can be exercised. An option contract giving the owner the right, but not the obligation, A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. Passive investing is an investment strategy that limits buying and selling actions.

Passive investors will purchase investments How much a fixed asset is worth at the end of its lease, or at the end of its useful life. If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded.

Get Free Newsletters Newsletters.

More...