Good News About the Sub-prime Mortgage Crisis

Good News About the Sub-prime Mortgage Crisis
Hey, wait a minute! In recent months, the national media
has dwelled on the collapse of the subprime mortgage market
and the surge of foreclosures. But there is another side
to this story that should also be considered.

The Mortgage Bankers Association recently released its
National Delinquency Survey and the numbers are not what
you may think. True, the rate of loans falling into
foreclosure last quarter was the highest in the survey's
54-year history. 8.4% of subprime loans were more than 90
days late or already in the foreclosure process. That
statistic is sobering, but it misses the point. If 8.4%
are seriously delinquent or in foreclosure, 91.6% of the
sub-prime borrowers are current with their loans and making
their mortgage payments on time. They are enjoying the
benefits of home ownership. Those borrowers were given the
opportunity to own (rather than rent) because of the
availability of sub-prime loans and have successfully taken
advantage of that opportunity. For them, the "American
Dream" has become a reality.

Of course, 8.4% default rate is high, but unanticipated
financial problems happen. After all, people don't buy
homes, take out loans, and then intentionally default.
Usually something serious happens to disrupt the natural
process. Commonly, it is loss of job, divorce, medical
catastrophe, or some other unanticipated financial
emergency that causes people to default. Keep in mind,
though, you don't have to a sub-prime borrower to have
financial problems. Prime borrowers also default on their
loans and lose their homes in foreclosure (no one is immune
in this market). Sure, the percentages are higher for
sub-prime borrowers, but they are typically in a more
vulnerable financial situation. Of course, they have a
higher interest rate and pay a larger mortgage payments
every month, so cut them some slack. Regardless, the
solution is not to cut-off subprime lending, but rather to
embrace these borrowers' unique needs. Particularly now,
lenders need to offer delinquent homeowners programs to
restructure their loans and avoid foreclosure. Let' look
at why.

Delving deeper into the MBA survey, we discover several
surprising facts. For example, the surge in sub-prime
foreclosures last quarter was driven by four large states,
California, Arizona, Nevada, and Florida. If it were not
for the avalanche of foreclosures in those four states,
there would have been an overall drop in the rate of
foreclosure filings nationwide. Thirty-four states
actually reported a decrease in the rate of new foreclosure
foreclosures in the last quarter, and the remaining states
(other than those four) reported only a modest increase.

There is also a wide divergence between fixed-rate and
adjustable-rate loans. The delinquency rate for prime
fixed-rate loans was essentially unchanged from the
previous quarter and the rate for sub-prime fixed rate
loans actually fell! In contrast, the rate of delinquency
for prime adjustable-rate mortgages increased 36% and
sub-prime adjustable-rate mortgages increased 227%.

Clearly, adjustable-rate mortgages ("ARMs") are the culprit
and present a unique problem. But there is nothing wrong
with ARMS, provided they are utilized responsibly. They
have benefits you can't find with fixed-rate loans. They
have lower interest rates and correspondingly lower monthly
payments. They allow borrowers to qualify for loans they
would not otherwise receive (of which the vast majority
successfully pay each month). Plus, it just doesn't make
sense to obtain a 30-year fixed rate loan, when in reality
most people sell or refinance their homes every 5-7 years.

Nationwide, California leads the way with over 17% of all
sub-prime adjustable rate mortgages. Similarly, California
has over 19% of the foreclosures for sub-prime ARM loans.
In fact, the same four culprits; California, Nevada,
Arizona and Florida, have more than one-third of the
nation's sub-prime ARMs, more than one-third of the
foreclosures started on sub-prime ARMs, and most of the
nationwide increase in foreclosures.

Another factor to consider is the distinction between
owner-occupied and investor (non-owner occupied) borrowers.
A majority of the delinquencies and foreclosure starts can
be attributed directly to non-owner occupied loans. This
is because investors are notorious for defaulting on
mortgages when the market dips and they see the value of
their properties evaporating. Further exacerbating the
problem, investors' share of defaulted loans was 32% in
Nevada, 25% in Florida, 26% in Arizona, and 21% in
California. Yep, those same four states. Those rates are
high compared with a rate of only 13% for the remainder of
the country. And those percentages will certainly increase
as property values continue to decline.

One more thing. The media has been quick to blame mortgage
brokers for "forcing" borrowers into sub-prime
adjustable-rate loans. I laugh every time I hear that.
Anyone who has ever been a mortgage broker knows that you
can't force a loan on borrowers, prime or sub-prime. It
doesn't work like that anymore. Homeowners are more
sophisticated than ever before. They have access to the
internet, television and the mass media, and analyze
available loan programs. They understand the difference
between fixed-rate and adjustable-rate loans, between
amortized and interest-only payments, and between "stated"
and full documentation. They shop and explore
alternatives. Ultimately, they select the loan they want,
not their mortgage broker. Regardless of what the media
says, that process works successfully for the vast majority
of American homeowners.

All tolled, the sub-prime mortgage crisis is bad, but not
nearly as bad as the media would have you believe. If you
dig deeper into the survey, and segregate the four problem
states, subprime ARMs, and investor loans, you will
discover that with the vast majority of American
homeowners, default and foreclosure are not issues. At
least not yet.

----------------------------------------------------
This article was written by Lloyd Segal, mortgage banker,
attorney, author, public speaker, and amateur economist.
As an eternal optimist, Lloyd can find "good news" in
almost anything. Lloyd is also the author of "Stop
Foreclosure Now" and puts on monthly foreclosure workshops
for investors and realtors.
http://www.ForeclosureWorkshop.net

Secured Credit Cards - Easy Way To Establish or Re-establish Credit

Secured Credit Cards - Easy Way To Establish or Re-establish Credit
Typically, secured credit cards are issued when the holder
is able to offer a type of "security" deposit to the lender
by depositing a pre-arranged amount of money into a savings
account, money market or certificate of deposit. This is
how it works: Usually, for a small fee, the lender will
allow the cardholder to utilize the credit card within the
specified parameters. Unlike using the cash for any
purchases, the secured card creates a credit history for
the holder, thus contributing to their overall credit
rating.

With a secured credit card, it is imperative that you make
full payments each and every month; otherwise interest is
charged on the outstanding balance. If you default, the
lender will use the amount in the security account to pay
off the debt and this can result in more damage to your
credit rating.

Don't Fall Prey To Credit Card Scams

As with any other financial undertaking, it is important
that you read the fine print so you are totally aware of
exactly what you are paying for. There are some pretty
unscrupulous predators out there whose primary goal is
separating you, the consumer, from your money. For this
reason, you should pay particular attention to the fee
schedule prior to accepting any offers for credit cards. Of
course, no-fee credit cards are best, but most often the
lender will require a small one-time activation fee, which
can typically range from $25 to $60.

The user must be vigilant when obtaining credit, so it is
your responsibility to make sure there are no hidden fees.
Special care must be taken when the contract contains
clauses outlining registration charges and/or set-up fees.
In some cases, the cost of the card can quickly exceed your
credit limit, thus only adding to your credit woes.

Do Your Research On Secured Credit Cards Before You Apply

With a secured credit card, you may have to pay a higher
than average interest rate, however, this does not mean
that the interest charge is outlandish. Many secured cards
offer competitive rates under 19% and again, this is where
diligent research on the part of the user becomes
paramount. You should be cognizant of all grace periods,
the penalty for late payments and the fees charged should
full payment not be made within the proscribed time frame.

Once you show due diligence over the specified time frame
(most lenders like to see a history of six months to one
year of responsible credit card use), the creditor may
offer to double the amount of credit available to you, with
a portion of this fixed amount being unsecured. Should you
choose to close out the account, however, the unsecured
funds must be returned to the lender.

The cardholder should ensure that the creditor regularly
informs credit-reporting agencies of their payment history.
Once it can be established that you are using credit
reliably and sensibly, your credit score will increase and
you will then be eligible to apply for an unsecured credit
card.

----------------------------------------------------
Liz Roberts is a loan consultant with NewHorizon Finance
and has been providing consumers and business owners with
financing since 1989. Bad Credit? Get our free credit
repair ebook ( on building and repairing credit yourself) ,
without hiring a credit repair service. You may also
compare a list of secured credit cards at
http://www.newhorizon.org/Info/securedcc.htm
Copyright 2007

How To Find The Property Bargains in Spain?

How To Find The Property Bargains in Spain?
Have you ever heard of the expression "To look but not
see"? This expression sums up the market fairly well at the
moment, particularly with reference to property bargains in
Spain.

As both an investor and a homeowner, you think you want to
know how to find the property bargains in Spain, but you
don't. What you really want to know is in which of the
property bargains in Spain should you invest.

You see currently there are so many property bargains in
Spain from which to choose, however Spanish real estate
agents still maintain that there are not. Phrases such as
"Hurry, it's the last one!" or "You'll have to be quick as
this won't be available for long!" are used in their sales
pitches to entice unknowing buyers who haven't taken the
time or initiative to discover that the opposite is
actually true.

And with all the talk in Spain about the "slump" in the
property market, it's no wonder some people are getting the
wrong idea. I mean, really, there can't be a lull with
property bargains in Spain for both buyers and sellers, can
there? Feasibly, whilst one of them has the upper hand, the
other suffers. So which is it?

Well, there's a lot of choice out there. It seems that a
couple of years ago, investors - assuming the market would
continue to boom - bought up big, particularly with
2-bed/2-bath apartments hoping to sell them in today's
market at a profit.

Unfortunately, since then, these are no longer in hot
demand. The result: an over-saturation of the property
market with regards to unfinished developments.

Action: buy these property bargains in Spain now, and wait,
because what seems expensive today will be the going rate
tomorrow.

Of course you do have to watch out for the underhanded
greedy merchants whose illegal actions unfortunately ruin
the reputation of all Spanish real estate agents, however
if you check the area carefully comparing those that you
believe to be property bargains in Spain with those that
you would like to buy with similar ones in the same area to
see if they are the same price, then you are already half
way there!

The other point to check is whether or not the land that is
being built upon is actually approved. Many property
bargains in Spain are only bargains because they don't have
the proper paperwork in place.

Property bargains in Spain such as these can sometimes be
the cause of an investor's woes and usually lead to the
buyer losing their deposit, which can in certain cases, be
substantial.

Luckily, this is not the trend. Approximately
three-quarters of investors and home- owners are pleased
with their purchase and feel that they got a good deal, if
not a bargain. And they're happy to tell all their friends
so!

This reputation of developers of off-plan projects classed
as property bargains in Spain is very important as most
people in the UK know someone who has purchased a property
there and word-of-mouth travels fast!

Really though, a "bargain" is subjective. What one person
believes to be a bargain may be a rip-off to someone else.
It depends on your perspective.

At the end of the day, if you've done your research and are
happy with the price you paid, then you've surely succeeded
in finding one of the many property bargains in Spain.

----------------------------------------------------
Get in touch with the industry experts at
http://www.buyspain.co.uk for more details. Steve Magill
has written several articles with regard to the Spanish
property business. As a Fellow in the British Association
of Entrepreneurs (FBAE) he is considered an expert
consultant when it comes to real estate in Spain.

Before You Apply For A Bad Credit Loan...

Before You Apply For A Bad Credit Loan...
Once you've viewed your credit history report, and you know
your credit score, you're more aware of the specific
problems you might have trying to get a bad credit loan.
If your credit score is quite low, you may still be able to
get a loan, but you'll end up paying much higher interest
rates for the privilege. Often, the amount of money you can
borrow will be significantly lower than if your credit were
good. You probably will not be able to borrow tens of
thousands of dollars; more likely, only several thousand
dollars, depending on a number of factors including your
credit score and income level.

You can sometimes increase your chances of getting a loan
with bad credit if you're willing to do a little bit of
work. When you got a copy of your credit report, you were
able to see all of the problems listed on the report that
negatively affect your credit score. Chances are that you
can have some of those items removed or changed, thereby
increasing your FICO score.

Legally, if you dispute an item listed on your credit
report, the lender must verify the entry within thirty
days, or they are required to remove that item from your
credit report. Likewise, if you have items on your credit
report which are several years old, you may be able get
them automatically removed. Say you have a listing on your
credit report which is four years old. It's a revolving
store charge account, but that store is no longer in
business. If you file a dispute, and no one is around to
look up the old records, the lender who owns the debt may
be unable to respond to your dispute, so it will
automatically be removed. The more negative items you can
get removed, the higher your credit score will climb.

Beware, this strategy can also backfire on you. If you
dispute something and the company has people available to
verify the credit report item, your credit report could be
updated with the current date. And sometimes when this
happens, it shows as a new credit problem on your credit
report. Choose your battles wisely!

Once you've verified that your credit report is accurate,
and your credit score is as high as you can get it, then
it's time to start looking for banks or finance companies
that provide loans for people with bad credit. Keep in
mind that you can't always get the full amount that you
want. Sometimes you must begin with a smaller loan,
perhaps $500. When you demonstrate financial
responsibility to the lender, your amount of available
credit will increase.

Most lenders who specialize in bad credit loans will allow
you to explain your credit history problems. If some of
your credit problems are due to circumstances beyond your
control- for instance, an emergency medical bill, but all
other accounts and bills are paid on time, this information
will be considered when reviewing your loan application.

Almost universally, finance companies who provide loans for
people with bad credit will charge higher interest rates
than traditional lenders. Be prepared to answer some
questions about your credit history, and be prepared to pay
more in interest and/or loan processing fees. Most people
with damaged credit will be able to get a loan, but many of
them shouldn't. Make sure you have a legitimate reason for
applying for the loan, and take advantage of the
opportunity to improve your credit in the process.

----------------------------------------------------
Gregg Pennington writes articles on a number of topics
including loans, debt and credit. For more information
about finding a loan with bad credit visit:
http://www.onlinemoneysources.net/bad-credit-personal-loans.
html

Ask Your Financial Adviser: How Much Insider Information Do Others Get?

Ask Your Financial Adviser: How Much Insider Information Do Others Get?
Here is something important you should be aware of,
especially when making your own market or portfolio
management decisions, or when relying on the advice of your
financial adviser.

Do you know whether or not you have open and complete
access to all the pertinent information you might need to
make those investing or share trading decisions?

In a perfect world, as an independent investor in stocks,
you should be able to access and analyze the same
information available to takeover experts and corporate
acquirers, such as investment bankers, private equity
investors, public accountants, and so on.

This, regrettably, is not the case. Investors and traders
in public market securities and securities analysts have
access only to publicly available information. As a
result, they have less than complete information available
to them when they invest, trade, or in the case of
securities analysts, prepare their reports and
recommendations.

The information they don't have is often just as important
in the development of comprehensive, meaningful valuation
determinations. This is not a criticism of public market
participants (the financial advisers and analysts), who do
not have access to this vital and relevant information.
This is a result of securities laws that are outside their
control. Still, that does not change the fact that these
investment professionals need to do much the same analysis
as do those corporate acquirers, who seek to purchase 100%
of a company.

As opposed to public market participants, corporate
acquirers and their advisers, (pursuant to the appropriate
legal documents), have direct access to the directors and
executives of the target company. These persons provide
detailed responses to all requests for information made by
the corporate acquirer, hence providing information that is
both in the public domain and not in the public domain.
Furthermore, they get access to all documentation in the
target company's possession related to its assets,
liabilities and historic/prospective operating revenues,
expenses and cash flows.

But imagine if you did have much more information...almost
the very same as the corporate acquirers. I know of one
independent investor who decided to do something about
this. He conducted extensive investor and market research,
and then used that knowledge - and his own industry
experience - to assist those who want to manage their own
portfolios, the financial advisors who assist them; and
others who need unbiased, independent help. He used
innovative thinking and the web.

In the investment world, the Internet is helping to change
things and level the playing field. Every week someone
comes up with a great idea to harness the capabilities and
distributive power the Internet provides.

© Roy MacNaughton, 2007

----------------------------------------------------
To learn what was revealed by the research mentioned in the
story above, go to:

http://www.stockresearchddblog.com
Roy MacNaughton is a "niche" marketing adviser. He's a
seasoned marketer, with more than 25 years of international
experience, including eight years online. Read his blog
at: http://www.UmarketingU.com

Does a Chase Secured Credit Card Make Sense For You?

Does a Chase Secured Credit Card Make Sense For You?
If you don't yet have a credit card, a Chase secured credit
card may be the answer to your plastic woes. After all,
there are many valid reasons why an unsecured credit card
may not be in your immediate future. A Chase secured card
can be the perfect alternative. Wondering if a Chase
secured credit card is right for you? These tips will help
you figure it out.

Don't Qualify For a Secured Card?

One of the surest signs that a Chase secured card is right
for you is if you don't qualify for unsecured credit.
Whether it's unpaid medical bills or a case of mistaken
identity, it can take months (or even years) to repair your
credit. Why go cardless in the meantime? A chase secured
card can get you over the hurdles to come.

Want to Rebuild Credit?

If you don't have credit or need to rebuild it, a Chase
secured credit card can be the perfect answer. Unlike
prepaid credit cards, a Chase secured credit card is
reported to the credit bureaus. This means that your Chase
secured card activity can help you qualify for an unsecured
credit card in the future.

Need To Get Into The Credit Card Swing?

If you need to get into the credit card swing of things, a
Chase secured credit card is perfect for you. It works just
like an unsecured card. You make purchases (up to your
credit limit) and pay the bill when it comes in.

The only difference between a Chase secured credit card and
traditional unsecured credit cards is that a secured card
is secured by a savings account whereas unsecured cards
aren't. That makes this card perfect for learning the
credit card ropes.

Do You Have The Credit Card Blues?

Perhaps the most important factor in determining whether or
not you need a Chase secured credit card is if you have the
credit card blues. What are the credit card blues? Do you
find yourself facing frustration every time you have to
rent a car or book a hotel room? Is it due to a lack of a
credit card? If so, you need a Chase secured credit card.

If you find yourself in need of a credit card and an
unsecured card just isn't an option right now, a Chase
secured credit card could be just what the doctor ordered.
Get the credit you need now and build the credit rating you
want for the future. In less than a year, a Chase secured
credit card could open the doors to a world of unsecured
credit.

----------------------------------------------------
For more tips on secured credit cards, saving money and
avoiding getting taken, check out CreditCardTipsEtc.com, a
website that specializes in providing credit card tips,
advice and resources.
http://www.creditcardtipsetc.com/secured_credit_cards/

Why Use A Property Finder In Spain?

Why Use A Property Finder In Spain?
Why use a property finder in Spain? Off the top of my head
I would say, if you're not Spanish, why wouldn't you use a
property finder in Spain?

For starters, a property finder in Spain either understands
Spanish or works with a professional Spanish-English
translator. This is very helpful because most people
working with property in Spain only speak Spanish. It goes
without saying that you are at a great disadvantage if you
not know what is being said during the negotiations for
something, which you will end up paying for!

A property finder in Spain will know the area, the
different developments - resales, off-plan, and
urbanizations - and will be able to inform you of the
advantages and disadvantages of each one.

Undoubtedly, if there is an extremely good deal available,
a property finder in Spain will be much more likely to know
about it than an inexperienced individual visiting for the
first time.

Your property finder in Spain will have comparative
knowledge between the UK and Spanish property markets and
will be able to highlight the benefits, some of which you
may be unaware.

The same property finder in Spain will also know the ins
and outs of additional costs (taxes, stamp duty, legal
fees, mortgage fees, public notary levies, communal
expenses and so forth). He/she will be able to recommend
reliable and trustworthy people working in these areas
including legal representation.

Another aspect a property finder in Spain can help you with
is banking, fund transfers, and mortgage applications, as
he/she will have people they regularly work with. These
people will be well-versed in the procedures of purchasing
Spanish property, so have all relevant paperwork and
information on hand. In doing so, they save you precious
time (and sometimes money) with the proceedings.

Your property finder in Spain will also know about schools,
shops, transport, and facilities in the vicinity, which is
of added importance if you have children. More often than
not, many a property finder in Spain will actually live -
for some or all of the year - in Spain, which is handy for
"after sales service", once you've moved there.

For something as important as purchasing a property abroad
- which is a personal and expensive matter, it's hard to
understand why anyone wouldn't make the most of the
services of a property finder in Spain!

This is particularly the case with older people considering
retiring to Spain, where it is sometimes physically
impossible for them to "check out" the market. The services
of a property finder in Spain become invaluable as things
like transport from their holiday accommodation to view the
properties, is also included.

Finally, a property finder in Spain will be experienced
enough to answer your questions that are not necessarily
specifically about property such as how to claim pensions
and how to arrange payments of utilities.

Although you could purchase property without a property
finder in Spain, the question remains, why would you? I
mean, there's an easy and a hard way to do everything…this
just happens to be the easy way.

----------------------------------------------------
Get in touch with the industry experts at
http://www.buyspain.co.uk for more details. Steve Magill
has written several articles with regard to the Spanish
property business. As a Fellow in the British Association
of Entrepreneurs (FBAE) he is considered an expert
consultant when it comes to real estate in Spain.

Payday Loans - Scams or Simply Misunderstood

Payday Loans - Scams or Simply Misunderstood
Payday Loan Fees

For a fee of between $15 and $50, the borrower can get
money for an emergency or money shortage to tide them
through until their payday. If borrowers decide to roll
what they owe over for another fortnight, they are
responsible for another fee at the same rate.

Who Needs A Payday Loan?

The need for this type of service has arisen since banks
and other lending institutions generally don't lend small
amounts of money on these terms. The trouble with a payday
loan is the interest rates they offer is extremely high,
the amount of interest is calculated at around 300% per
annum.

Often borrowers fall into the trap of borrowing money from
a payday loan provider every fortnight, in order to stretch
their income further, in this case a payday loan is a very
dangerous choice. People who get caught up in the trap of
borrowing money from these companies, and rolling the money
over more than once run the risk of getting further in to
debt.

The RIGHT Way To Use A Payday Loan

The only way to borrow money from a payday loan company is
to understand the associated costs, and only do it in an
emergency, where the option of borrowing money from
friends, colleagues or family, and giving them a forward
dated check is not available.

Care should be taken to make sure that the company is
legitimate; one of the leading causes of fraud is from
companies posing as payday loan companies. Find out where
the company is situated, ask for their company phone number
before signing up, and try ringing it. Look over the
Internet for reports or information on the company, and
from other people who have lent money from them.

Be very wary of payday loan companies that ask for a fee
before forwarding money to the borrower, and avoid giving
out bank account numbers. Borrowers should opt for wire
transfers from western union rather than give out bank
account numbers and details as they run the risk of a
fraudulent company accessing their accounts and creating
further money problems. Some payday loan companies are
scams, and the borrower lends money at their own risk, so
care does need to be taken to choose legitimate companies.

The best way to deal with a payday loan company is to
understand how their fees and charges work. Know exactly
how much it is going to cost you to borrow the money, and
what will happen if you can't pay it back after payday. Be
very choosy with payday loan companies, some offer you a
better deal than others.

----------------------------------------------------
Liz Roberts is a loan consultant with NewHorizon Finance
and has been providing consumers and business owners with
financing since 1989. Bad Credit? Join our mailing list for
tips on building and repairing credit yourself, without
hiring a credit repair service or view our list of credit
cards for bad credit at
http://www.newhorizon.org/Info/unsecured.htm
Copyright 2007

Difference between In-the-money (ITM), out-of-the-money (OTM), or at-the-money (ATM) Options

Difference between In-the-money (ITM), out-of-the-money (OTM), or at-the-money (ATM) Options
An option can be described by its strike price's proximity
to the stock's price. An option can either be in-the-money
(ITM), out-of-the-money (OTM), or at-the-money (ATM).

An at-the-money option is described as an option whose
exercise or strike price is approximately equal to the
present price of the underlying stock.

For instance, if Microsoft (MSFT) was trading at $65.00,
then the January $65.00 call would an example of an
at-the-money call option. Similarly, the January $65.00 put
would be an example of an at-the-money put option.

Please view charts below for at-the-money option examples.

An in-the-money call option is described as a call whose
strike (exercise) price is lower than the present price of
the underlying. An in-the-money put is a put whose strike
(exercise) price is higher than the present price of the
underlying, i.e. an option which could be exercised
immediately for a cash credit should the option buyer wish
to exercise the option.

In our Microsoft example above, an in-the-money call option
would be any listed call option with a strike price below
$65.00 (the price of the stock). So, the MSFT January 60
call option would be an example of an in-the-money call.

The reason is that at any time prior to the expiration
date, you could exercise the option and profit from the
difference in value: in this case $5.00 ($65.00 stock price
- $60.00 call option strike price = $5.00 of intrinsic
value). In other words, the option is $5.00 "in-the-money."

Using our Microsoft example, an in-the-money put option
would be any listed put option with a strike price above
$65.00 (the price of the stock). The MSFT January 70 put
option would be an example of an in-the-money put.

It is in-the-money because at any time prior to the
expiration date, you could exercise the option and profit
from the difference in value: in this case $5.00 ($70.00
put option strike price - $65.00 stock price = $5.00 of
intrinsic value. In other words, the option is $5.00
"in-the-money."

Please view charts below for more in-the-money option
examples.

An out-of-the-money call is described as a call whose
exercise price (strike price) is higher than the present
price of the underlying. Thus, an out-of-the-money call
option's entire premium consists of only extrinsic value.

There is no intrinsic value in an out-of-the-money call
because the option's strike price is higher than the
current stock price. For example, if you chose to exercise
the MSFT January 70 call while the stock was trading at
$65.00, you would essentially be choosing to buy the stock
for $70.00 when the stock is trading at $65.00 in the open
market. This action would result in a $5.00 loss.
Obviously, you wouldn't do that.

An out-of-the-money put has an exercise price that is lower
than the present price of the underlying. Thus, an
out-of-the-money put option's entire premium consists of
only extrinsic value.

There is no intrinsic value in an out-of-the-money put
because the option's strike price is lower than the current
stock price. For example, if you chose to exercise the MSFT
January 60 put while the stock was trading at$65.00, you
would be choosing to sell the stock at $60.00 when the
stock is trading at $65.00 in the open market. This action
would result in a $5.00 loss. Obviously, you would not want
to do that.

----------------------------------------------------
Brett Fogle is the founder of Options University, a
training resource partner for traders. For a
comprehensive, free report on the 7 deadliest sins made
when options trading, visit
http://www.OptionsUniversity.com .