Explanation

For a call option:

• In the money (ITM): When the underlying asset price is greater than the exercise price
• At the money (ATM): When the underlying asset price is equal to the exercise price
• Out of the money (OTM): When the underlying asset price is less than the exercise price

The question states: "exercise price minus the price of the underlying at expiration"

Let's denote:

• Exercise price = X
• Price of underlying at expiration = S

So we have: X - S

For a call option to be in the money: S > X (underlying price > exercise price)

Rearranging: X - S < 0

Therefore, when X - S is less than zero, the call option is in the money.

Why the other options are incorrect:

• Option B (equal to zero): This would mean X = S, which is at the money (ATM)
• Option C (greater than zero): This would mean X > S, which is out of the money (OTM)

Key takeaway: For call options, the option is in the money when the underlying price exceeds the exercise price, which mathematically means exercise price minus underlying price is negative.