Define In- the-Money, At-the-Money and Out-of-the-Money Option Contrac

1.	Define In- the-Money, At-the-Money and Out-of-the-Money Option Contracts.
Answer» An in-the-money (ITM) option would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be in the-money when the current index stands at a level higher than the strike price (i.e. spot price > strike price). An at-the-money (ATM) option would lead to zero cash flow if it were exercised immediately. An option on the index is at-the-money when the current index equals the strike price (i.e. spot price = strike price). An out-of-the-money (OTM) option would lead to a negative cash flow if it were exercised immediately. A call option on the index is out-of-the money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price).

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Define In- the-Money, At-the-Money and Out-of-the-Money Option Contracts.

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