What Does It Mean When An Option Is ‘At-The-Money’? Find Out Now

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Option Chain for the S&P 500
Please note, this is an example trade – not a recommendation.

An option whose strike price is near where the stock price is currently. For example, if the stock of XYZ is trading at $50.15, the $50 strike price for both puts and calls would be considered to be the at-the-money option strike price. An at-the-money option has little to no intrinsic value.

For calls, an option whose strike price is below where the stock price is currently. For example, if the stock of XYZ is trading at $50.34, the $45 strike price would be considered to be an in-the-money call option. An in-the-money call option is primarily made up of intrinsic value, with very little extrinsic value.

Note: Deep in-the-money refers to a strike price with basically all intrinsic value. In the example above, a strike price of $35 might be considered deep in-the-money because the strike price for the call is so far below the current stock price of XYZ.

For puts, an option whose strike price is above where the stock price is currently. For example, if the stock of XYZ is trading at $50.34, the $55 strike price would be considered to be an in-the-money put option. An in-the-money put option is primarily made up of intrinsic value, with very little extrinsic value.

With calls, an option is out-of-the-money if the strike price is above where the stock price is currently. For example, if the stock of XYZ is trading at $49.87, the $55 strike price would be considered to be an out-of-the-money call option. An out-of-the-money call option is made up of entirely extrinsic value.

With puts, an option is out-of-the-money if the strike price is below where the stock price is currently.

For example, if the stock of XYZ is trading at $50.34, the $45 strike price would be considered to be an out-of-the-money put option. An out-of-the-money put option is entirely extrinsic value.

Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.

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