Which of the following is an example of a call option which is out of the money?

Question

BlackTom AI · Accepted Answer

A call option gives the holder the right (but not the obligation) to buy the underlying asset at the strike price; its intrinsic value is max(0, S − K) where S is the current stock price and K is the strike. A call is out of the money (OTM) when K > S, at the money (ATM) when K = S, and in the money (ITM) when K < S.

Step-by-step reasoning:
1. Identify relevant concepts:
   - Call option intrinsic value = max(0, S − K).
   - OTM for a call occurs when the strike price exceeds the stock price (K > S).
2. Apply values (S = $12) for each choice and compute intrinsic values:
   - Option to sell at $13 (this is a put): intrinsic = max(0, K − S) = max(0, 13 − 12) = $1 (this is ITM for a put, but it’s not a call).
   - Option to buy at $12 (call): intrinsic = max(0, 12 − 12) = $0 → ATM (not OTM).
   - Option to buy at $13 (call): intrinsic = max(0, 12 − 13) = max(0, −1) = $0 → K (13) > S (12) so this call is OTM.
   - Option to sell at $11 (put): intrinsic = max(0, 11 − 12) = max(0, −1) = $0 → OTM for a put (again, not a call).
   - Option to buy at $11 (call): intrinsic = max(0, 12 − 11) = $1 → ITM for a call.

Why the correct answer is correct:
- The option “to buy at $13” is a call with K = $13 and S = $12, so K > S and the call has zero intrinsic value; by definition this is out of the money.

Why other options are incorrect:
- “Sell at $13” is a put and is ITM (K > S) but the question asks for a call.
- “Buy at $12” is ATM, not OTM.
- “Sell at $11” is a put and OTM, but it’s not a call.
- “Buy at $11” is ITM (call), not OTM.

Conclusion: The correct choice is “The option to buy at $13, the stock is worth $12.” This matches the provided answer.

Which of the following is an example of a call option which is out of the money?单项选择题

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