At the money is a term used in options trading when the strike price of an option is equal or very close to the currency market price of the underlying asset. At the money options are considered neutral, and they have an equal chance of expiring in the money or out of the money. At the money options may occur in various financial markets, such as stocks, currencies, and commodities.
A trader purchases a call option on a stock with a strike price of $100. If the current market price of the stock reaches $100, the option will be at the money. This means that the option has not yet gained or lost intrinsic value, and there is an equal chance of the market price moving in either direction. Should the stock price increase beyond $100, the option will become in the money. On the other hand, should it decrease below $100, the option will become out of the money.
If you have an at the money option contract, the best course of action depends on your trading strategy, investment objectives, and the current market outlook.
If you have a call option and foresee the asset’s market price will rise, you may exercise your option to buy the asset at the strike price and sell it at a higher price later. If you foresee the asset’s price will fall, you may sell the option to another trader for profit instead of exercising it.
If you have a put option and foresee the asset’s market price will fall, you may exercise your option to sell the asset at the strike price and buy it back at a higher price later. If you foresee the asset’s price will rise, you may sell the option to another trader for profit instead of exercising it.
Regardless, it is important to note there are risks involved in options trading to be cautious of. Before making any investment decisions, you should ensure you understand these risks.
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