At the Money

At the Money (ATM) Option Meaning

At the money options strike prices (ATM), strikes follow the closest to the stock’s current price. When looking at an options chain, look for the strike price closest to the stock price, which would be the ATM strike. Options strikes make up one of the most critical components of options contracts. There are the-money, out-of-the-money, and at-the-money strikes to choose from. ATM contracts are very popular, offering weekly and day trading options. 

Since at the money options have the same strike price as the current market price, they have no intrinsic value. You get intrinsic value by subtracting a stock’s price and strike price. As a result, being the same, there is no intrinsic value.

That means it’s up to the extrinsic value, also known as time value. Both intrinsic and extrinsic value make up the strike price. If there’s no intrinsic value, then time becomes really important.

At the money is a term used in options trading. ATM is a situation where the strike price of an options contract is the same as the stock price at which it’s currently trading. ATM is one of the three “money” components of options trading.

For example, you wanted to trade a stock trading at $50. If you were to buy 100 shares at $34.00, you’d be spending $3,400. Let’s say an at-the-money options contract costs $1.15. That trade would only cost you $115.

As you can see, you’d be spending a lot less money to place that trade. However, much more goes into options that affect profit and loss. It would help if you determine your trading style and whether you prefer stocks vs. options.

Basics 

Options contracts have expiration dates. As a result, if you’re trading at the money options contracts, you must ensure you’ve given yourself a few months to expire.

The reason for that is you can make money off of time. You can also lose money off of time. There are two other types of options moneyness. They are ITM and out of the money. This is why selling options is key.

They’re both different based on whether you’re buying calls or puts. An in the money call option is when the strike price is less than the market price. At the same time, a put in the money contract has a strike above the current market price.

OTM, calls have a strike higher than the market price. The put side has a strike that is less than the current market value. However, regarding the money, there is no difference between strike and market value for either play.

COURSE
Day Trading Course Options Trading Course Futures Trading Course
DESCRIPTION Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action
Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading
INCLUDED

Three Different Option Classifications

One of the three classifications of options is “at the money,” which depends on the strike price’s relation to the underlying asset’s current market price. The other two classifications are “in the money” and “out of the money” options.

ATM call options have a strike price that is either identical or nearly identical to the present market price of the underlying security.

In other words, the option’s strike price is at or near the same level as the underlying stock trading.

These options are considered “ATM” because they do not have any intrinsic value. The option will only have value if the underlying stock’s price moves favorably before the option’s expiration date.

An ATM option has a strike price equal to the underlying security’s current market price. In other words, the strike price is the same as the asset’s market price.

At the Money Options Example

At the Money Example

This is an example of an options chain with the stock currently trading at $393.03. The pricing at the center of the chain is the strike price option. The gray shaded areas are in the money call options. The black-shaded areas are out of the money. 

This example shows the $393 strike circled because it’s the ATM option. Options chains are customizable and allow traders to add columns showing intrinsic, extrinsic, implied volatility, and open interest. There are also options charts available too.

Option Greeks are also very important as well. There are Theta, Gamma, Delta, and Vega

Does At the Money Have Intrinsic Value?

Call options that are at the money do not have any intrinsic value. Instead, their value is primarily determined by extrinsic factors, such as remaining time until expiration and market volatility, rather than their intrinsic value.

Investors who are unsure or neutral about the price of an underlying asset may prefer at-the-money call options. Unlike in-the-money options, these options allow investors to benefit from potential price changes without requiring a large upfront investment.

For example, if ABC’s stock is trading at $50, an at-the-money call option for ABC would have a strike price of $50. This means that the option holder has the right, but not the obligation, to buy the stock at the current market price of $50. Various factors, like the time remaining until expiration and market conditions, affect the premium or price of the option.

Is It Worthless?

No. Even though an at-the-money option doesn’t have intrinsic value, it still has value. The possibility still exists that the option will hit in-the-money status before it expires. That value (the difference between an in-the-money option’s intrinsic value and the current option price) is called the time value. When you buy an at-the-money option, you’re buying the time value.

Risks Of Options

It is vital to understand that call options that are either in-the-money or at-the-money come with inherent risks. These risks include losing the premium paid for the options, especially if the underlying asset’s price is unexpected.

Traders who buy ATM call options speculate that the underlying security price will increase so that the option becomes profitable. If the stock price does not move significantly or declines, the option may expire worthless or with minimal value due to time decay.

Ultimately, the decision between in-the-money and at-the-money call options depends on factors such as the investor’s outlook on the underlying asset, risk tolerance, and investment strategy.

Key Takeaways: At The Money (ATM) Options

  • ATM call options have a strike price that is either identical or nearly identical to the present market price of the underlying security.
  • Call options that are at the money do not have any intrinsic value.
  • The moneyness of an option determines what its intrinsic value is
  • When you buy an at-the-money option, you’re buying the time value.
  • Traders who are bullish on the underlying asset and expect its price to rise further generally prefer ITM call options.
  • Even though an ATM call option doesn’t have intrinsic value, it still has value.

Frequently Asked Questions

At the money (ATM) is the options strike price closest to the underlying market price. Look at an options chain and see which strike is closer to the stock's actual price.

At the money (ATM) is the strike price on an options chain that is closest to the underlying stocks actual market price.

The choice between in-the-money (ITM) and at-the-money (ATM) call options depends on the investor's strategy and overall goals. We explore this question in more detail below.

When the strike price of an option is higher than the current market price of the underlying security, the option is referred to as out of the money (OTM). Call options at the money (ATM) have strike prices equal to or very close to the market price of the underlying security. Alternatively, when the market price of the security is higher than the option strike price, the call option is in the money (ITM) 

Call options in the money (ITM) have intrinsic value because the underlying asset's market price exceeds the strike price. This means that the option holder can buy the underlying at a lower price and profit from the price difference. Traders anticipating a rise in the underlying asset's price often prefer ITM call options.

Related Articles

Options Trading Levels

Options Trading Levels

What are options trading levels? Brokers implement levels on new trading accounts to protect new traders. Options allow you to trade big-name stocks with less

Read More »

FREE ONLINE TRADING COURSES

If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.

We are opposed to charging ridiculous amounts to access experience and quality information. 

That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too! 

On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.

We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.

Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.

It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.

Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person! 

STOCK TRADING COURSES FOR BEGINNERS

The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.

If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered. 

We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.

Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.

Click Here to take our free courses.