Intrinsic Value and Call Options

We only make money with Call Options when Stock Prices go Up.

Call Options are classified as:

• In-the-Money (ITM) : when Stock price is more than Option Strike Price 

• At-the-Money (ATM) : when Stock price is hovering around Option Strike Price 

• Out-of-the-Money (OTM) : when Stock price is less than Option Strike Price 

In-the-Money (ITM) Calls

Call Options are “In-the-Money” when Stock Price is more than Option Strike Price. Let’s say:
• Current Stock Price  = $ 99.27
• We buy Call Option  = AAPL Jul 90 Call

If we exercise our Call Option now, we can buy AAPL shares for $ 90. We can immediately sell these AAPL shares for $ 99.27. We are assured of an immediate cash return of $9.27. As such, these Call Options are called “In-the-Money” as they can be converted to cash immediately!

Out-of-the-Money (OTM) Calls

Call Options are “Out-of-the-Money” when the Stock Price is less than Option Strike Price. Let’s say:
• Current Stock Price    = $99.27
• We Buy Call Options  = AAPL Jul 110 Call

If we exercise our Call Option now, we can buy AAPL Shares for $110. We can then immediately sell these AAPL Shares for $99.27. This will give us an immediate loss of $10.73. As such, these Call options are called “Out-of-the-Money” as they have no immediate cash benefits.
 

At-the-Money (ATM) Calls

If the Stock Price is hovering near the Call Option Strike Price, we say that the Call Option is At-the-Money (ATM). So if AAPL is trading at $99.27, then the AAPL 100 Call will be ATM Option.

Next: IV and Put Options ...