{"id":3987,"date":"2021-08-17T17:55:11","date_gmt":"2021-08-17T12:25:11","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=3987"},"modified":"2022-05-25T18:23:55","modified_gmt":"2022-05-25T12:53:55","slug":"at-the-money","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/at-the-money\/","title":{"rendered":"At the Money Option Guide 2022 \u2013 Overview, Meaning, Significance and Examples"},"content":{"rendered":"\n<p>Want to get better at option trading strategies? This article is the perfect comprehensive guide to option moneyness. Let\u2019s start with the basics. The <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-the-intrinsic-value-of-a-stock-and-how-to-calculate-it\/?utm_source=blog&amp;utm_medium=article\">intrinsic value<\/a> of an options contract is described as moneyness. In this article, we\u2019ll break down this definition into simple terms.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#What-is-options-contract\" title=\"What is options contract?\">What is options contract?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#What-is-the-value-of-the-option\" title=\"What is the value of the option?\">What is the value of the option?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#Intrinsic-value\" title=\"Intrinsic value\">Intrinsic value<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#Important-situations-with-intrinsic-value-that-you-should-know-about\" title=\"Important situations with intrinsic value that you should know about\">Important situations with intrinsic value that you should know about<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#Extrinsic-value\" title=\"Extrinsic value\">Extrinsic value<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#What-is-option-moneyness\" title=\"What is option moneyness?\">What is option moneyness?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#The-three-categories-of-moneyness\" title=\"The three categories of moneyness\">The three categories of moneyness<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#In-the-money-ITM\" title=\"In-the-money (ITM)\">In-the-money (ITM)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#Out-of-the-money-OTM\" title=\"Out-of-the-money (OTM)\">Out-of-the-money (OTM)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#At-the-money-ATM\" title=\"At-the-money (ATM)\">At-the-money (ATM)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/at-the-money\/#In-a-nutshell\" title=\"In a nutshell\">In a nutshell<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"options\"><span class=\"ez-toc-section\" id=\"What-is-options-contract\"><\/span><strong>What is options contract?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Let\u2019s begin with what \u2018options\u2019 are in <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-options-trading\/\">options trading<\/a>. Commonly referred to as options, the full term is known as options contracts. These are financial contracts between two parties specifying a future transaction on a particular asset at a specified price.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"value\"><span class=\"ez-toc-section\" id=\"What-is-the-value-of-the-option\"><\/span><strong>What is the value of the option?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The pricing of an option is based on two components:<\/p>\n\n\n\n<ul><li><a href=\"https:\/\/www.tickertape.in\/blog\/intrinsic-value-of-shares\/\">Intrinsic value<\/a><\/li><li>Extrinsic value<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Intrinsic-value\"><\/span><strong>Intrinsic value<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The intrinsic value of a business or investment security defines the present value of all expected future cash flows that are discounted at the appropriate discount rate. Intrinsic valuation focuses primarily on the inherent value of a business on its own.<\/p>\n\n\n\n<p>The intrinsic value of an option is also known as the monetary value. It refers to the difference between the strike price and underlying asset price, assuming the option is exercised immediately. Intrinsic value becomes the value of an option if it expired at this very moment.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Important-situations-with-intrinsic-value-that-you-should-know-about\"><\/span><strong>Important situations with intrinsic value that you should know about<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<ul><li>When traders say an option is in-the-money, they mean it has intrinsic value<\/li><li>When they say it is out-of-the-money, it means the option has no intrinsic value. You should remember that out-of-the-money options have no intrinsic value<\/li><li>When traders say that the contract has expired worthless, it means an option has expired out-of-the-money<\/li><\/ul>\n\n\n\n<p>The relationships between ITM, OTM, and ATM determine the intrinsic value of the option, which is a key factor in option pricing.<\/p>\n\n\n\n<p>Let\u2019s assume you want to exercise the option when <a href=\"https:\/\/www.tickertape.in\/indices\/nifty-index-.NSEI?utm_source=blog&amp;utm_medium=article\">Nifty 50<\/a> is trading at the spot price of 11,415 CE and the strike price is 11,400 CE. Now, when you exercise this option, the money that you will make from this contract will be equal to the intrinsic value minus the premium. Therefore, the intrinsic value will be:<\/p>\n\n\n\n<p><strong>Spot Price &#8211; Strike Price = 11,415-11,400 = Rs 15<\/strong><\/p>\n\n\n\n<p>You will therefore earn a profit of Rs 15.&nbsp;<\/p>\n\n\n\n<p><strong>Note:<\/strong> The premium has not been taken into account.<\/p>\n\n\n\n<p><strong>Expert tip&nbsp;<\/strong><br>When you are into trading options, ask this question:<br>If this option were to expire today, would it have any value?<br>If yes, then the option has intrinsic value.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Extrinsic-value\"><\/span><strong>Extrinsic value<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Another important concept to understand when trading options is the extrinsic value. True, that it plays a less prominent part in moneyness, but it\u2019s important to know. Among the many components of extrinsic value, you will often come across time value, or theta as it receives the most attention. It is an attributable portion of an option\u2019s premium to the amount of time until the expiration of the option contract.<\/p>\n\n\n\n<p>In other words, the more the time until expiration, the higher the extrinsic value of the option. Investors pay a higher premium for additional time as the contract will then have longer to achieve profitability from a favourable move in the underlying asset. When there is less time remaining until expiration, investors are less willing to pay a premium, because the stock has less time to become profitable.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fat-the-money%2F&#038;text=Expert%20tip%3A%20When%20you%20are%20into%20trading%20options%2C%20ask%20this%20question%3AIf%20this%20option%20were%20to%20expire%20today%2C%20would%20it%20have%20any%20value%3F%20If%20yes%2C%20then%20the%20option%20has%20intrinsic%20value.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">Expert tip: When you are into trading options, ask this question:If this option were to expire today, would it have any value? If yes, then the option has intrinsic value. <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fat-the-money%2F&#038;text=Expert%20tip%3A%20When%20you%20are%20into%20trading%20options%2C%20ask%20this%20question%3AIf%20this%20option%20were%20to%20expire%20today%2C%20would%20it%20have%20any%20value%3F%20If%20yes%2C%20then%20the%20option%20has%20intrinsic%20value.&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<h2 class=\"wp-block-heading\" id=\"moneyness\"><span class=\"ez-toc-section\" id=\"What-is-option-moneyness\"><\/span><strong>What is option moneyness?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Moneyness shows how the strike price of the option relates to the current trading price of the underlying asset. To state simply, moneyness refers to the intrinsic value of an option in its current state. Based on the relationship of the strike price to the underlying stock price at the current time, traders classify options into three distinct categories. These categories further describe an option\u2019s moneyness.<\/p>\n\n\n\n<p>Moneyness can be categorized into three types: in-the-money, out-of-the-money, and at-the-money. If you are entering the world of options trading, it is important for you to understand these terms as they are mentioned in every options strategy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"three\"><span class=\"ez-toc-section\" id=\"The-three-categories-of-moneyness\"><\/span><strong>The three categories of moneyness<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>You need to master the concept of moneyness when trading options, so you should be aware that the concept of moneyness tends to get complicated when you start adding sophisticated options strategies to the mix. The three categories are driven by the relationship between the current stock price and option strike price. Let\u2019s establish a good solid basic understanding of the categories:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In-the-money-ITM\"><\/span><strong>In-the-money (ITM)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>ITM refers to the position of the strike price against the stock price at any given time. For instance, the option is said to be in-the-money if you have a call option and your stock price is greater than the current strike price.&nbsp;<\/p>\n\n\n\n<p>ITM only describes the relationship between the two prices and not the trader\u2019s actual profitability. Therefore, if you have a put option and your stock price is lower than the strike price, then your position is in-the-money.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Out-of-the-money-OTM\"><\/span><strong>Out-of-the-money (OTM)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>OTM describes the current relation of the strike and stock prices for your particular trade. With a call option, your position is OTM when the stock price is lower than the strike price. With a put option, it is OTM, when the stock price is higher than the strike price.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"At-the-money-ATM\"><\/span><strong>At-the-money (ATM)<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When both prices are at the same level and are no different in trading in calls or puts, then the options are ATM. ATM shows a parity of price levels across stock and strike prices.<\/p>\n\n\n\n<p>For instance, let\u2019s suppose Nifty 50 is trading at 11,400. The ATM will be at 11,400 for both the put and call options.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In-a-nutshell\"><\/span><strong>In a nutshell<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Option&nbsp;<\/strong><\/td><td><strong>In the money&nbsp;<\/strong><\/td><td><strong>At the money<\/strong><\/td><td><strong>Out of the money<\/strong><\/td><\/tr><tr><td><strong>Call option&nbsp;<\/strong><\/td><td>Stock price &gt; Strike price&nbsp;<\/td><td>Stock price = Strike price&nbsp;<\/td><td>Stock price &lt; Strike price&nbsp;<\/td><\/tr><tr><td><strong>Put option<\/strong><\/td><td>Stock price &lt; Strike price&nbsp;<\/td><td>Stock price = Strike price&nbsp;<\/td><td>Stock price &gt; Strike price&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>To conclude with an expert tip and present you with an opportunity to making profits. Remember, when options are ITM, you will have plenty of profitable opportunities. Selling call options that are deep ITM always provide the opportunity to take make profit. So, take it immediately, rather than waiting until the underlying stock is sold.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Want to know what is at the money option and how it works? Click here to read about at the money, types of moneyness options and more<\/p>\n","protected":false},"author":46,"featured_media":3558,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[9,1738],"tags":[544],"acf":[],"modified_by":"Neera Bhardwaj","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/07\/Stock-Market-2.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3987"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/46"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=3987"}],"version-history":[{"count":4,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3987\/revisions"}],"predecessor-version":[{"id":8817,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/3987\/revisions\/8817"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/3558"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=3987"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=3987"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=3987"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}