At The Money Definition
At the Money Call Option Example
At the Money Put Option Example
- What are Stock Options ?
- What are Call Options ?
- What is a Put Option ?
- In The Money Option
- Deep in the Money Option
- Out Of The Money Option
Definition of "At The Money" Option:
An option is said to be at the money if the current stock price is equal to the strike price. It doesn't matter if we are talking about calls or puts. Any call or put whose underlying stock price equals the strike price is said to be at the money. Sometimes you will see "At The Money" abbreviated as "ATM." You may also see "OTM" which mean "Out of the Money" and ITM which means "In the Money".
Example of "At The Money" Call Option:
Notice with YHOO at $15.42 there are NOT any At The Money options because the strike prices are whole numbers going from $12 to $18. Also notice how ETRADE does a nice job of shading the in the money calls and and the in the money puts to make them easy to see. The unshaded calls and puts are out of the money options.
Suppose YHOO is at $15.42 and you think YHOO's stock price is going to go up to $17 in the next few weeks. One way to profit from this expectation is to buy the a YHOO Call with a strike price of $16. While the price of YHOO is less than $17 the option is said to be "out of the money or OTM." When the price of YHOO hits $17 then the call is said to be "at the money or ATM." When the price of YHOO is above $17 the call is said to be "in the money or ITM." The phrase "at the money" is used for both before and at expiration. At expiration, an Out-of-the-money call options and an even A-the-money call options would both expire worthless. The ITM (In-the-money) options are the ones that have value and that you want to own!
Example of At The Money Put Options:
With MSFT at $29.19 there are NOT any At The Money options because the strike prices are whole numbers going from $26 to $32. Also notice how ETRADE does a nice job of shading the ITM calls and and the ITM puts to make them easy to see. The unshaded calls and puts are therefore OTM options.
Suppose MSFT is at $29.19 and you think MSFT's stock price is going to go down to $27 in the next few weeks. One way to profit from this expectation is to buy a MSFT Put with a strike price of $28. While the stock price of MSFT is greater than $28 the put is said to be "out of the money or OTM." When the price of MSFT hits $28 the put is said to be "at the money or ATM." When the price of MSFT is below $28 the put is said to be "in the money or ITM." At expiration, an "OTM put option" and an "ATM put option" would both expire worthless.
Call and Put Trading Tip: When you have identified a stock that you think will move a lot in a short period of time and you decide you want to buy a call or put, you generally see the highest percentage return in the short term when you buy an option that is slightly out of the money. Another thing you should know is that the price of ATM options is that they generally move at a 50% ratio to the movement of the underlying stock price. So if MSFT is at $25 and the price of the stock moves $1, you would expect the price of the ATM call options and the put options move about $0.50.
Here are the top 10 option concepts you should understand before making your first real trade: