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There is an interesting concept in options trading called moneyness which is pretty straight forward: it refers to the relative position of the current price of an underlying asset (stock, ETF, futures contract) with respect to the strike price of its derivative, in our case, the option contract.

If you want to master options trading, you have to master moneyness. Try to answer this: If the options you bought or sold, were to be exercised TODAY, would you be making or losing money?

If you don’t know the answer yet, moneyness is your weak spot.

Saying an option contract is At-The-Money (ATM), In-The-Money (ITM) or Out-Of-The-Money (OTM) does not tell the complete story as it merely describes the relationship between the strike price and the current underlying asset’s price.

An option contract—either a call or a put—is said to be At-The-Money (ATM) if the strike price is the same, or nearly the same, as the current price of the underlying asset.

Generally, this is the strike price where you will find the highest trading activity (open interest and volume), the tightest bid/ask spread and also the highest implied volatility due to the amount of uncertainty baked into it. It is the thin edge that separates intrinsic from extrinsic value. The battlefield where two different worlds stage a war for true or no value.

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Chart of the Day

At-The-Money (ATM) Options

Here’s a screenshot of a typical option chain. This one is from the Tastyworks platform. The areas marked in yellow represent the strikes prices that are ATM for both calls and puts. Each strike price is the same, or nearly the same, as the current price of the underlying asset (the spot price).

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Video of the day

What Are At the Money Options

An option contract is said to be at-the-money (ATM) if the strike price is the same, or nearly the same, as the current spot price of the underlying security.

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Today’s line up

Rookie Corner

Switching Gears!

For the last few weeks in this blog, we have been talking about reducing risk by using different options strategies. You may have been asking yourself where did I learn to accomplish this reduction? That’s a great question. That shows that you are a forward thinking individual and that will serve you well as a budding trader.

Traders Lounge 11PM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cashflow Club 8:30PM EST

Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.

Halftime Report 12:30PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Market Recap

The Market Recap is designed to give you a quick overview of the day that was. While brief, this report is designed to cover all of the major events that drove the markets that day and help you plan for the trading day ahead.

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