What Is At The Money (ATM)? At the money (ATM) is a situation where an option's strike price
is identical to the current market price of the underlying security
. An ATM option has a delta of ±0.50, positive if it is a call, negative for a put.
Both call and put options can be simultaneously ATM. For example, if XYZ stock is trading at $75, then the XYZ 75 call option
is ATM and so is the XYZ 75 put option
. ATM options have no intrinsic value, but will still have extrinsic or time value prior to expiration, and may be contrasted with either in the money (ITM) or out of the money (OTM) options.
- At the money (ATM) are calls and puts whose strike price is at or very near to the current market price of the underlying security.
- ATM options are most sensitive to changes in various risk factors, including time decay and changes to implied volatility or interest rates.
- ATM options are most attractive when a trader expects a large movement in a stock.
Play video on original page
0 seconds of 0 seconds
At The Money
Understanding At The Money (ATM) At the money (ATM), sometimes referred to as "on the money", is one of three terms used to describe the relationship between an option's strike price and the underlying security's price, also called the option's moneyness
Options can be in the money
(ITM), out of the money
(OTM), or ATM. ITM means the option has intrinsic value and OTM means it doesn't. Simply put, ATM options are not in a position to profit if exercised, but still have value—there is still time before they expire so they may yet end up ITM.
The intrinsic value
for a call option is calculated by subtracting the strike price from the underlying security's current price. The intrinsic value for a put option, on the other hand, is calculated by subtracting the underlying asset's current price from its strike price.
A call option is ITM when the option's strike price is less than the underlying security's current price. Conversely, a put option is ITM when the option's strike price is greater than the underlying security's stock price. Meanwhile, a call option is OTM when its strike price is greater than the current underlying security's price and a put option is OTM when its strike price is less than the underlying asset's current price. Special ConsiderationsOptions that are ATM are often used by traders to construct spreads
and combinations. Straddles
, for instance, will typically involve buying (or selling) both an ATM call and put.
Image by Julie Bang © Investopedia 2019
ATM options are the most sensitive to various risk factors, known as an option's "Greeks
". ATM options have a ±0.50 delta
, but have the greatest amount of gamma, meaning that as the underlying moves its delta will move away from ±0.50 rapidly, and most rapidly as time to expiration nears.
Options trading activity tends to be high when options are ATM. ATM options are the most sensitive to time decay,
as represented by an option's theta
. Moreover, their prices are most responsive to changes in volatility, especially for farther maturities, and is expressed by an option's vega
. Finally, ATM options are also most sensitive to changes in interest rates, as measured by the rho
At The Money (ATM) and Near The Money The term "near the money
" is sometimes used to describe an option that is within 50 cents of being ATM. For example, assume an investor purchases a call option with a strike price of $50.50 and the underlying stock price is trading at $50. In this case, the call option is said to be near the money.
In the above example, the option would be near the money if the underlying stock price was trading between about $49.50 and $50.50. Near the money and ATM options are attractive when traders expect a big movement. Options that are even further OTM may also see a jump when a swing is anticipated. Options Pricing for At The Money (ATM) Options An option's price is made up of intrinsic and extrinsic value
. Extrinsic value is sometimes called time value, but time is not the only factor to consider when trading options. Implied volatility
also plays a significant role in options pricing.
Similar to OTM options, ATM options only have extrinsic value because they possess no intrinsic value. For example, assume an investor purchases an ATM call option with a strike price of $25 for a price of 50 cents. The extrinsic value is equivalent to 50 cents and is largely affected by the passage of time and changes in implied volatility. Assuming volatility and the price stay steady, the closer the option gets to expiry the less extrinsic value it has. If the price of the underlying moves above the strike price to $27, the option now has $2 of intrinsic value, plus whatever extrinsic value remains.
What Does "Near the Money" Mean?
The expression "Near the money" refers to an options contract whose strike price is close to the current market price of the corresponding underlying security. more
Time Decay Definition
Time decay is a measure of the rate of decline in the value of an options contract due to the passage of time. more
Wasting Asset Definition
A wasting asset is an item that irreversibly declines in value over time. This can include vehicles and machinery as well as options contracts. more
Out of the Money (OTM) Definition and Example
An out of the money (OTM) option has no intrinsic value, but only possesses extrinsic or time value. OTM options are less expensive than in the money options.more
What Does "Deep Out of the Money" Mean?
An option is deep out of the money if its strike price is significantly above (call) or below (put) the current price of the underlying asset. more
What Is a Bear Straddle?
A bear straddle is an options strategy that involves writing a put and a call on the same security with an identical expiration date and strike price. more
Investopedia is part of the Dotdash