# At the Money Option

At the money (ATM) option with exercise price equal to the price of the underlying asset. The option holder is indifferent between exercising it and not exercising it.

At the money option is where the payoff of a call option and a put option intersects. In case of a call option, as the price of the underlying asset moves above the exercise price, the option is said to be in the money. On the other hand, if price of the underlying asset dives below the exercise price, the option is said to be out of the money. The moneyness of a put option is just opposite to that of a call option i.e. it is in the money when the price of the underlying asset moves below the exercise price, and out of the money when the price of the underlying asset is higher than the exercise price.

## Example

It is 15 July 2013 and eBay stock is trading at $57. You own 5 call options and 5 put options on AMD stock. Their exercise prices are $55, $56, $57, $57.5 and $58 and they are due to expire the next day. Classify the options as at the money, in the money and out of the money.

__Solution__

Options (both call and put) with exercise price of $57 are at the money because the exercise price equals to the price of the underlying asset (eBay stock).

Call options with exercise prices of $55 and $57 are in the money because the price of the underlying asset is higher than their exercise prices. Call options with exercise price higher than the price of the underlying asset i.e. call options with exercise prices of $57.5 and $58 are out of the money.

Put options with exercise price higher than the price of the underlying asset i.e. options with exercise prices of $57.5 and $58 are in the money. Put options with exercise price lower than the price of the underlying asset i.e. those with exercise prices of $55 and $56 are out of the money.

Written by Obaidullah Jan, ACA, CFA