Option traders know that “At the Money” is when the strike price of an option is equal to the market price of an underlying stock. This means the strike price equals the market price and the option holds no intrinsic value.
How At the Money Works
At-the-money option trading is good for the investor because these options generally have good liquidity and trading volume.
When it is At the Money, an option has no intrinsic value, because it has a strike price that equals the underlying stock’s current market price. Traders employ this concept in estimating the option’s potential profitability, as it influences the premium and activity in trading the option. The relationship between the strike price and the market price is essential in determining an option’s value as a financial asset.
Features of At-the-Money Options
At the Money options have several distinctive features that include:
- High trading activity: At The Money options usually have high trading activity, which makes it easy for traders to buy/sell.
- Little or no intrinsic value: The lack of basic value of an option allows traders to ignore time value and volatility in their trading decisions.
- Easy to analyse: Since the relationship between the strike price and the market price is clearer, this helps traders analyze better and make an informed decision.
Conclusion
“At-the-Money” is one of the key concepts that every investor should know in order to carry out effective and profitable option trading. At-the-Money options often have high trading activity, and with Religare Broking, you can trade these options quickly and easily. Open an account with Religare Broking today, and take advantage of the opportunities in options trading.