Intrinsic Value and Put Options

We only make money with Put Options when Stock Prices go Down.

Put Options are classified as:

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

 In-the-Money (ITM) Puts

Put Options are "In-the-Money"when Stock Price is less than Option Strike Price. Let’s say:
• Current Stock Price  = $ 99.27
• We Buy Put Option  = AAPL Jul 110 Put

If we exercise our Put Option now, we can sell AAPL shares for $ 110. We can then immediately buy these AAPL shares for $ 99.27. We are assured of an immediate cash return of $10.73. As such, these Put Options are called “In-the-Money” as they can be converted to cash immediately!

Out-of-the-Money (OTM) Puts

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

If we exercise our Put Options now, we can sell AAPL shares for $90. We can then immediately buy these AAPL shares for $99.27. This will give us an immediate loss of $9.27. As such, these Put Options are called “Out-of-the-Money” as they have no immediate cash benefits.

At-the-Money (ATM) Puts

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

Next: Extrinsic Value ...