AT THE MONEY STOCK OPTIONS (ATM)- Options Trading Basics

At the money stock options are those options whose strike price is very close to the current market price of the underlying.

There are three types of moneyness notions related to Options that an options trader must be aware of. In-the-money (ITM), At-the-money (ATM) and Out-of-the-money (OTM). If you are new to Options Trading, you might be interested in first reading my post on Options Examples.

To understand the concept of At the Money stock options, one has to first understand the notion of intrinsic value of an Option. The Intrinsic Value of an Option, is the value which an options trader would get if she were to exercise the option at that moment. Thus for a Call Option whose strike price is greater than the value of the underlying intrinsic value is zero. Otherwise the intrinsic value of a Call Option is defined to be

Intrinsic value of Call Option = Current Price of the underlying - Strike Price

For a Put Option whose strike price is lower than the current price of the underlying, the intrinsic value is zero. Otherwise Intrinsic Value of a Put Option is defined to be
Intrinsic value of Put Option = Strike Price - Current Price of the underlying

The remaining component of the option price is called the Time Premium or Extrinsic value.
Time Premium of an Option = Option Price - Intrinsic Value.

In the money options are those which have positive intrinsic value. Out of the money options have zero intrinsic value. While At the Money Options (ATM) have zero or nearly zero intrinsic value.

Options Greeks

  • Option Greeks for Beginners (with free Options Calculator)
  • Option Greek Delta and Delta Neutral Options Trading Strategy
  • Option Greek Theta and its role in Options Trading Strategies
  • Option Greek Vega and implied volatility
  • Option Greek Rho - does it really matter in your Options Trading Strategies?
  • Stock Market Derivatives: Futures, Options

  • From Forward contract to Futures.
  • Stock Futures example - Futures trading basics explained.
  • Stock Options trading examples - Call Option Example and Put Option example.
  • Covered Call and Covered Put - Simplest Options trading strategy.
  • Volatility and Options Pricing - How is Option premium priced?
  • Lot Size of a Derivatives Contract - Contract Unit

  • Options Trading Basics
    In the Money Stock Options
    At the Money Stock Options
    Out of the Money Stock Options

    Jun 28, 2009

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