CFDs are complex financial instruments and carry a high level of risk due to leverage. A significant proportion of retail investors incur losses when trading leveraged products such as CFDs. You should carefully consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your capital.
At-the-money (ATM) describes an option whose strike price matches the current price of the underlying asset. If your call option has a strike price of $50 and the stock is trading at $50, it is at-the-money. In this state, the option generates neither a profit nor a loss on its own.
An ATM option has no intrinsic value. Its price depends solely on the time to expiration and expected volatility. This applies to both call and put options. In both cases, a strike price equal to the market price means the option is at-the-money.
ATM is best understood by comparing it to the other two possible states.
At the money: the strike price equals the price of the underlying asset. Out of the money (OTM): the strike price is not in favor of the buyer. In the money (ITM): the strike price already generates intrinsic value. These three states determine how much the option is worth and how it behaves in response to price movements.
You just need to compare two numbers.
Check the price of the underlying asset. For example, the stock is trading at $75.
Check the strike price. If it’s $75, the option is to use an ATM.
Classify. Strike price equals market price = ATM. Strike price favorable to the buyer = ITM. Strike price unfavorable to the buyer = OTM.
A stock is trading at $100. A trader buys a call with a strike price of $100 and pays a $4 premium. If the stock rises to $108, the option is worth $8. After deducting the premium, the trader makes a $4 profit.
With a put at the same strike price and a premium of $3.50, if the stock falls to $93, the option is worth $7. Net profit: $3.50. In both cases, the underlying asset must move more than the premium paid.
An ATM position seems neutral, but it leads to specific misunderstandings.
Forgetting that the premium is the minimum cost that must be recouped.
Ignoring that time value is lost every day.
Assuming that ATM means low risk.
Knowing how to identify the ATM state has direct applications.
Choose strikes based on your strategy and time horizon.
Calculate how much the price must move to make a profit.
Analyze activity in the options chain.
“At the money” indicates that the strike price matches the current price of the underlying asset. The option has no intrinsic value, only time value. It is the reference state for most options strategies.