Any future option trading spread that has intrinsic value is
considered in-the-money. How can you identify the value of a
vertical call spread or a vertical put spread? Compare the future
price to the strike prices.
Look at any vertical call spread. If the future option trading
price is above the lower strike of the spread, then the spread
is in-the-money. For example, in the Feb. 50 55 call spread,
if the stock is trading at $52.00, then the spread would be
in-the-money by $2. This is because if the spread expired today,
the Feb. 50 calls would finish $2.00 in-the-money. The Feb.
55 calls would finish worthless because they are out-of-the-money.
The future option trading spread, however, would be in-the-money
with a value of $2.00.
The rule is similar for determining whether or not a spread
is out-of-the-money. If the future option trading price is lower
then the lower strike of the spread, then the spread is out-of-the-money.
Again, looking at the Feb. 50 55 call spread, if the spread
expired today and the stock price closed at $48.00, (lower than
the lower strike) then the spread would be out-of-the-money,
thus the spread will be out-of-the-money. And, of course, if
the stock is trading at the same price as the lower strike price,
then the future option trading spread will be considered at-the-money.
For vertical put spreads, a spread is determined to be in-the-money
if the future option trading price is lower than the higher
of the two strikes of the spread. For example, lets look at
the Sept. 40 45 put spread. If the future option trading was
to close at $42.00 on expiration day, the Feb. 45 put would
end up in-the-money and worth $3.00. The Feb 40 puts would be
out-of-the-money creating a $3.00 intrinsic value for the spread.
Since the spread has an intrinsic value, it is in-the-money.
A vertical put spread is considered to be out-of-the-money if
the future option trading price is higher than the higher strike
of the spread. So, going back to our Sept. 40 45 put spread
example, if the future option trading was to close at a price
of $46.00 (higher than the higher strike) then both the Sept.
40 and 45 put will expire worthless. Thus the spread will be
worthless and out-of-the-money.
A vertical put spread is considered at-the-money when the future
price is equal to the higher strike price.