Hello and welcome to BeachBum Trading! If you’re new to the world of stocks and options, you may have come across the term “At The Money” or ATM. In this short [What does it mean when a Stock Option is At The Money (ATM)?] video 🎥, we’ll break down what it means when a stock option is At The Money and why it’s an important concept to understand.
First, let’s define what an option is. An option is a contract that gives the buyer the right to buy or sell a stock at a specific price, known as the strike price, on or before a specific date. Now, when the strike price is the same as the current market price, the option is considered At The Money.
To help you understand this analogy, think of it like standing at a cash machine. You have the option to withdraw money at the same amount that you currently have in your account. Similarly, when an option is At The Money, it has the highest time value and the lowest intrinsic value. This means that it has the highest chance of reaching its strike price and making a profit.
However, it’s important to note that the stock price can go up or down, which means the option can become Out Of The Money or In The Money, depending on where the stock price moves.
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