The correct answer is C, is in the money by $1.50. A call option is in the money (ITM) when the market price of the underlying stock is above the strike price.
Step-by-step, the intrinsic value of a call option is calculated as:
Market Price − Strike Price
In this case:
$36.50 − $35.00 = $1.50
This means the call option has $1.50 of intrinsic value at expiration. Since the option is in the money, it will not expire worthless—instead, it will be exercised (or automatically exercised), allowing the holder to buy the stock at $35 and potentially sell it at the market price of $36.50.
Choice A is incorrect because “at the money” would mean the stock price equals the strike price. Choice B is incorrect because only out-of-the-money options expire worthless. Choice D is incorrect because the option is not out of the money—it is above the strike price.
It is also important to note that the investor wrote (sold) the call, meaning they face an obligation to deliver the stock at $35 if exercised, resulting in potential loss.
Thus, the call option is in the money by $1.50, making Answer C correct.
