CandleFocus Glossary Editor
At The Money (ATM) options are a type of stock contract that payout a fixed sum of money if the stock asset price at the expiration date of the contract is equal or greater than the pre-determined strike price.
Unlike other stock contract options, ATM options involves a higher risk if the stock asset price decreases, as the investor must hold onto the option until expiry date in order to maximize their profits. The underlying stock must reach or exceed the predetermined strike price at the expiration date, otherwise the option is worthless.
ATM options are usually the most popular options traded in the market due to their sensitivity to various risk factors. Because the strike price of an ATM option is usually very close to the current stock asset price, it is highly sensitive to time decay and changes in implied volatility. For example, if the interest rates increase, the implied volatility of the stock asset will be reduced, making the option less valuable.
At The Money options are most attractive when traders expect a large movement in a stock price. If the stock asset moves in the predicted direction and the strike price is close enough to the attained stock asset price at expiration, investors could earn a significant return. However, if the prediction does not come true or the stock asset does not reach the predetermined strike price level, the option will expire worthless.
To summarize, At The Money options are a type of stock contract that can be used to generate large returns if the predicted market direction is correct. However, high volatility and time decay make ATM options a risky investment instrument and investors should carefully analyze the risk and understand the terms before venturing into this type of stock contract. As a result, investors should analyze the market carefully before successfully trading At The Money Options.
Unlike other stock contract options, ATM options involves a higher risk if the stock asset price decreases, as the investor must hold onto the option until expiry date in order to maximize their profits. The underlying stock must reach or exceed the predetermined strike price at the expiration date, otherwise the option is worthless.
ATM options are usually the most popular options traded in the market due to their sensitivity to various risk factors. Because the strike price of an ATM option is usually very close to the current stock asset price, it is highly sensitive to time decay and changes in implied volatility. For example, if the interest rates increase, the implied volatility of the stock asset will be reduced, making the option less valuable.
At The Money options are most attractive when traders expect a large movement in a stock price. If the stock asset moves in the predicted direction and the strike price is close enough to the attained stock asset price at expiration, investors could earn a significant return. However, if the prediction does not come true or the stock asset does not reach the predetermined strike price level, the option will expire worthless.
To summarize, At The Money options are a type of stock contract that can be used to generate large returns if the predicted market direction is correct. However, high volatility and time decay make ATM options a risky investment instrument and investors should carefully analyze the risk and understand the terms before venturing into this type of stock contract. As a result, investors should analyze the market carefully before successfully trading At The Money Options.