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What is 'At The Money'

At the money is a situation where an option's strike price is identical to the price of the underlying security. Both call and put options are simultaneously at the money. For example, if XYZ stock is trading at 75, then the XYZ 75 call option is at the money and so is the XYZ 75 put option. An at-the-money option has no intrinsic value, but it may still have time value. Options trading activity tends to be high when options are at the money.

BREAKING DOWN 'At The Money'

At the money is one of three terms used to describe the relationship between an option's strike price and the underlying security's price, or option moneyness.

Differences Between Types of Moneyness

The other two are in the money, meaning the option has some intrinsic value, and out of the money, meaning the option has no intrinsic value. 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 is calculated by subtracting the underlying asset's current price from its strike price.

A call option is said to be in the money when the option's strike price is less than the underlying security's current price. Conversely, a put option is said to be in the money when the option's strike price is greater than the underlying security's stock price. A call option is said to be out of the money when its strike price is greater than the current underlying security's price. On the other hand, a put option is said to be out of the money when its strike price is less than the underlying asset's current price.

The term "near the money" is sometimes used to describe an option that is within 50 cents of being at the money. 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. The call option is said to be near the money. The option would also be near the money if the underlying stock price was trading between $50.51 and $51.

Option Pricing

An option's price is made up of intrinsic and extrinsic value, or time value. Similar to out-of-the-money options, at-the-money options only have time value because they possess no intrinsic value. For example, assume an investor purchases an at-the-money call option with a strike price of $25 for a price of 50 cents. The time value is equivalent to 50 cents and is largely affected by the passage of time and changes in implied volatility.

RELATED TERMS
  1. In The Money

    1. For a call option, when the option's strike price is below ...
  2. Out Of The Money - OTM

    A call option with a strike price that is higher than the market ...
  3. Deep Out Of The Money

    An option with a strike price that is significantly above (for ...
  4. Near The Money

    An options contract where the strike price is close to the current ...
  5. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
  6. Time Value

    The portion of an option's premium that is attributable to the ...
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RELATED FAQS
  1. What is the difference between in the money and out of the money?

    Learn about how the difference between in the money and out of the money options is determined by the relationship between ... Read Answer >>
  2. When is a call option considered to be "in the money"?

    Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is ... Read Answer >>
  3. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  4. What happens when a security reaches its strike price?

    Learn more about the moneyness of stock options and what happens when the underlying security's price reaches the option ... Read Answer >>
  5. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  6. When is a put option considered to be "in the money"?

    Learn about put options, what they are, how these financial derivatives operate and when put options are considered to be ... Read Answer >>
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