In options trading, the term "At the Money" (ATM) refers to a situation where the option’s strike price is exactly equal to the current market price of the underlying asset. In other words, when the price of the asset is the same as the price at which the option holder can buy or sell the asset, the option is considered ATM.
Example of ATM Call:
Imagine a trader is long a Reliance Industries call or put with a strike price of ₹2000 when the market price is ₹2000. Such an option is known as an ATM option.
What Happens at Expiration?
When the option expires, several things can happen:
● It could become In the Money (ITM) if the market price moves in favour of the option holder.
● It could become Out of the Money (OTM) if the market price moves away from the option's strike price.
● Or, it could remain At the Money (ATM), where the strike price and market price remain the same.
At this point, the buyer must decide whether it’s worth exercising the option, as the option’s value depends on how the market price has moved by the expiration date.
In summary, an At the Money option is a neutral position, where the strike price and market price are equal. Understanding this concept helps traders assess their options and make informed decisions as expiration approaches
Disclaimer: This information is for educational purposes only. Trading in Futures and Options involves substantial risk and is unsuitable for all investors. Past performance is not indicative of future results. Consult a financial advisor before engaging in such trading activities.
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