At the Money

“At the Money” (ATM) is a term used in options trading to describe a situation in which an option’s strike price is identical to the market price of the underlying asset.

For example, if you own a call option (the right to buy) for a stock with a strike price of ₹50, and that stock is currently trading at ₹50 per share in the market, then that option is said to be “at the money.”

Essentially, the “at the money” term is an indication of the relationship between the market price of an underlying asset and the strike price of an option. If you were to execute or exercise an “at the money” option, you would neither make a profit nor incur a loss at that very moment, excluding the costs of the transaction itself.

In terms of an option’s value, “at the money” options consist of entirely “time value” as they contain no intrinsic value. Their total price is largely determined by how much time is left until the option’s expiration date, as well as the volatility of the underlying asset.

Keep in mind that as market conditions fluctuate, an option can move in and out of money, meaning it can switch from being “at the money” to being either “in the money” or “out of the money”, depending on how the price of the underlying asset changes.

Related Posts

Going Short

“Going Short” is a fundamental concept in stock trading that beginners must understand. It’s a strategy used by investors when they predict that a particular

Read More »

Beta Weighting

Beta weighting is a method used in portfolio analysis to assess and adjust for risk. It is a measure that compares the volatility of an

Read More »