Explanation

For a put option:

• In-the-money (ITM): When the underlying asset price is less than the exercise price (strike price). The put option has intrinsic value because the holder can sell the asset at a higher price than the market price.

  Formula: Underlying Price < 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 greater than the exercise price. The put option has no intrinsic value because the holder would not exercise the right to sell at a lower price than the market price.

  Formula: Underlying Price > Exercise Price

Given in the question:

• Price of the underlying > Exercise price
• This matches the out-of-the-money condition for a put option

Example:

• Put option with strike price = $50
• Current underlying price = $60
• The put is out-of-the-money because you wouldn't exercise the right to sell at $50 when you could sell at $60 in the market.

Key Concept: For put options, the relationship is opposite to call options:

• Call option: ITM when Underlying Price > Exercise Price
• Put option: ITM when Underlying Price < Exercise Price