Glossary
At the money (ATM)
An option whose strike price equals, or is very close to, the current price of the underlying asset.
An option is at the money (ATM) when its strike price is equal to, or very near, the current price of the underlying stock or index. Because strikes come in fixed steps, an exact match is rare, so traders use "ATM" for whichever strike is closest to the market price. It is the dividing line between in-the-money and out-of-the-money options, and it is where an option's price is most sensitive to time and volatility.
How it works
An ATM option has essentially no intrinsic value: exercising it would gain nothing. Its whole premium is time value, the price of the chance that the stock moves enough before expiration. That makes ATM options the most expensive in time-value terms of any strike in the chain, and the ones that lose the most dollars to time decay each day as expiration nears.
Why traders watch ATM options
- Delta near 0.50. An ATM call's price moves roughly 50 cents for each $1 in the stock (an ATM put about −0.50), and gamma, the rate of change of delta, peaks here.
- Volatility benchmark. Quoted implied volatility for a stock usually refers to its ATM options, and the price of an ATM straddle is a quick read of the move the market expects by expiration.
- Pin risk. A short option that finishes almost exactly at the money leaves its seller uncertain whether it will be exercised.