At The Money

At the money (ATM) is a term used in options trading to describe an option whose strike price is equal to the current market price of the underlying security. This means that if the option is exercised, the holder will receive the same price for the underlying security as they would if they simply bought it on the open market.

There are two types of ATM options: calls and puts. A call option gives the holder the right to buy the underlying security at a specified price, while a put option gives the holder the right to sell the underlying security at a specified price.

If an ATM call option is exercised, the holder will pay the strike price and receive the current market price of the underlying security. This means that the holder will make a profit if the market price of the underlying security rises above the strike price.

If an ATM put option is exercised, the holder will receive the strike price and sell the underlying security at the current market price. This means that the holder will make a profit if the market price of the underlying security falls below the strike price.

ATM options are often used by investors who are looking to hedge their positions. For example, an investor who owns a stock may buy an ATM put option to protect themselves from a decline in the stock price.

ATM options can also be used by investors who are looking to speculate on the future direction of the market. For example, an investor who believes that a stock price is going to rise may buy an ATM call option.

It is important to note that ATM options are not always profitable. In fact, if the market price of the underlying security does not move significantly, the holder of an ATM option may lose money.

As a result, ATM options are typically only used by experienced investors who understand the risks involved.