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| Options have several different strike prices that you can buy or sell. For Example September corn is currently around $7.20 per bushel. If you bought a $7.20 call, it would be considered at the money. Any call option with a strike price above $7.20 would be out of the money and any call option below $7.20 would be in the money. Say you bought a $7.00 call last week when the market was at $.700. Now the call would be in the money and would have gone up in value. A call option is basically buying the right, but not the obligation, to purchase something at a set price in a given time period. So, in the above example if you're be able to by a corn at $7.00, when it is worth $7.20 you have made money. Currently a Sept $7.00 call would cost .39, .20 of that is "in the money" intrinsic value and the remainder is time value. The closer its get to expiration the faster time value erodes, especially the further "out of the money" you might be. Additionally, the more in the money an option the closer its prices move with the underlying commodity. IE; $7.00 call will go up more than a $7.20 if the price of corn goes up. Puts are essentially the opposite (right to sell). There is certianly more to it than I explained, but hope that helps. | |
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Can someone explain 'in the money' and 'out of the money' options
