At the money (ATM) definition

What is at the money?

At the money (ATM) is a term used to describe an options contract with a strike price that is identical to the underlying market price. At the money options see a lot of trading activity, because they are so close to becoming profitable.

At the money options have no intrinsic value and will incur a loss if exercised due to the premium paid for the option. However, ATM is the point at which the option will start to have an intrinsic value.

In options trading, there are three ways to describe an option’s ‘moneyness’: out of the money, at the money and in the money. When the price of the underlying asset in an option is equal to its strike price, it is at the money. If it has not yet reached that point, it is out of the money, and if it has exceeded it then is in the money. These terms apply to both call options and put options.

Example of at the money

Let’s say a trader decides to buy a call option with a strike price of $12. Once the current market price is also $12, then the option is at the money. If it rises beyond this point the option will be in the money, as it now has a value, but if it falls it will be out of the money and cannot be exercised.

If the trader decides to buy a put option with a strike price of $12 instead, it would still be considered at the money if the market price was $12. However, it would only be in the money if the underlying asset’s price fell beyond this point, but if the market rose it would be out of the money.