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At-the-Money (ATM)

An option is considered At-the-Money (ATM) when the underlying asset’s market price is equal to or very close to the option’s strike price.

For example, if a stock is trading at $50 and the strike price of the option is also $50, the option is said to be at-the-money.

At-the-money options have no intrinsic value — they consist only of extrinsic (time) value. Because of that, they are often used in strategies that depend on time decay or volatility, such as straddles or strangles.

Check Your Understanding

Which of the following best describes an at-the-money (ATM) option?