Derivatives - out/at/in the money- premium taken into account or not?

CFA Level I Derivatives
#1

Hi everyone,

Until now, I was persuaded that we had to take into account the premium of an option to determine whether it was in/out/at the money.

However, I just saw an exercice where they don’t take it into account (and of course, the answer is then totally different, as the option in the exerice isn’t deep in the money).

What is the standard regarding such calculations?

Thanks

#2

The premium doesn’t matter; you compare the strike price to the market price.

#3

To the best of my knowledge, Premium isn’t taken into account for calculating Moneyness.

#4

In/at/out is determined only the current value of the stock and the strike price.

For instance a call on stock S has a strike of 20.00 and a premium of 1.50

If stock S = 21 your option is in the money but if you exercise you lose 0.50

#5

ok, thanks!!

#6

My pleasure.