Series 7 Exam Question 77: Answer and Explanation

Question: 77

Which option is out of the money if ABC is trading at $60 per share?

• A. ABC May 65 put
• B. ABC Aug 45 call
• C. ABC Nov 80 call
• D. ABC Dec 70 put

Correct Answer: C

Explanation:

C. For a call option to be out of the money, the price of the underlying security has to be below the strike (exercise) price. For a put option to be out of the money, the price of the underlying security has to be above the strike price. So out of all of the options listed, the only one that is out of the money is answer (C). For answer (C) to be in the money, the price of ABC would have to be above the strike price of 80.