What does at the money mean in options?
In one line: An option is at the money (ATM) when its strike price is equal to, or very close to, the current price of the stock.
A simple example
A stock trades at $100.20. On the Options chain, strikes come in $1 steps.
The $100 strike is the closest, so the $100 call and the $100 put are both called at the money.
Say the $100 call costs $3.20. Only $0.20 of that is built-in value (the stock is $0.20 above the strike). The other $3.00 is time value. Per contract of 100 shares, that's $320 in total.
What makes ATM options special
| Feature | At the money | Far from the money |
|---|---|---|
| Delta | About 0.50 (calls) or −0.50 (puts) | Close to 0 or 1 |
| Time value | Highest | Lower |
| Gamma | Highest, especially near expiry | Lower |
| Theta (daily time decay) | Highest in dollars | Lower |
A delta near 0.50 means the option moves about $0.50 for each $1 in the stock. It also means the option is roughly a coin flip to finish in the money. That's a rough guide, not an exact odds figure.
Why it matters
ATM options react the most to everything: price moves, time passing and changes in Implied volatility. That's why they're the most traded and usually have the tightest bid-ask Spread.
It's also why they cost the most time value. You pay for the uncertainty. See prices at different stock levels in the options profit calculator.
A common mistake
Holding an ATM option into its last days without a plan. Time decay and gamma both peak there. The option's price can swing from a few dollars to nothing in hours.
If you've sold an ATM option, you can't be sure you won't be assigned at expiry. Close it first if that matters.
"Near the money" is a looser phrase. It usually means within a strike or two of the stock price.
Start with options trading basics.
Questions
Is an at-the-money option in the money?
Only by a tiny amount, or not at all. ATM means the strike is at or very near the price, so it's on the line between the two.
Why do traders like at-the-money options?
They're the most active, with tight spreads, and they respond strongly to stock moves.
What is the delta of an at-the-money option?
About 0.50 for a call and −0.50 for a put. It moves away from that as the stock moves.
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