At the Money

At the Money

3 min read

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

What Does At the Money (ATM) Mean?

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 it’s currently trading at. ATM is one of the three “money” components to options trading.

For example, you wanted to trade a stock that is 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, this much more that goes into options that affect profit and loss. You have to figure out your trading style and whether you like stocks vs options better.

At the Money Example

Basics 

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 than time becomes really important.

Options contracts have expiration dates. As a result, if you’re trading at the money options contracts you would need to make sure you’ve given yourself a few months to expiration.

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 in the money and out of the money. This is why selling options is key.

They’re both different based of whether you’re buying calls or puts. An in the money call options is when the strike price is less than the market price. Whereas a put in the money contract has a strike that is above the current market price.

Out of the money calls have a strike that’s higher than the market price. The put side has a strike less than current market value. However, at the money has no difference in strike and market value for either play.

If you need more help, take our options trading course.

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