Loading the player...

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. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, ...
  4. Deep Out Of The Money

    An option is deep out of the money if its strike price is significantly ...
  5. Put Option

    A put options is an option contract giving the owner the right, ...
  6. Option

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Trading

    Understanding Option Pricing

    This article will explore what factors you need to consider in the pricing of options when trying to take advantage of a stock price's movement.
  2. Trading

    A Newbie's Guide to Reading an Options Chain

    Learning to understand the language of options chains will help you become a more effective options trader.
  3. Trading

    The Basics Of Option Price

    Learn how options are priced, what causes changes in the price, and pitfalls to avoid when trading options.
  4. Trading

    The Options Premium

    An options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested ...
  5. Investing

    Why Options Trading Is Not for the Faint of Heart

    Trading options is not easy and should only be done under the guidance of a professional.
  6. Trading

    Options Strategies for Your Portfolio to Make Money Regularly

    Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
  7. Trading

    Option trading strategies: A guide for beginners

    Options offer alternative strategies for investors to profit from trading underlying securities. Learn about the four basic option strategies for beginners.
  8. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  9. Trading

    Stock Options: What's Price Got To Do With It?

    A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What role does intrinsic value play in put options?

    See why the concept of intrinsic value is so important in options trading and how investors use it to evaluate the worth ... Read Answer >>
  4. How Do Speculators Profit From Options?

    Options are a risky game, but you can learn speculators' tricks to use them to your advantage. Read Answer >>
  5. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
Hot Definitions
  1. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  2. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  3. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  4. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  6. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
Trading Center