In this article, we will discuss the At the Money Call Put Options. In this series of articles, we will cover the various "Moneyness of Options" - basically In the Money Options, At the money Options and Out of the Money options. Together, this concept is known as Moneyness of Options.

At the Money Call Put Options and how the Moneyness of ATM options varies

What is At the Money Option or ATM Option? The moneyness of an option is determined by the "relative" values of strike price (Exercise price) and the underlying's spot price.

By definition, If the exercise price of a call option (or Put option) is same as the present market (or spot) price of the underlying stock (or index), then the call or put option is said to be At-the-money option. Going by the nomenclature explanation, the buyer of this call option has the right to buy the stock at a price which at present is same as the price he would have to pay to buy the stock in the stock market, so he is at a no profit no loss position, hence he is just "at-the-money".

So let's take an example of Microsoft stock option. Suppose Mr. X has bought the Microsoft call option at $2 and the Microsoft call option has a strike price of 30 and expiry as 30-June-2010. Suppose that the underlying spot price , i.e., the actual stock price of Microsoft is currently same as the strike price of the option, i.e. $30 per share.

As per the definition mentioned above, In this case, the strike/exercise price of the option is $30 which is same as the present market price of the underlying ($30). Hence this particular option is said to be At the Money.
In this case the buyer has the right to buy the options at $30 per share (which is the strike price of the option), although the market price of Microsoft stock is same ($30). Hence, this situation is neither profitable nor loss-making to the Buyer, so it is called At the Money Call Option.
Another way to look at the moneyness is the profitability in the pay off function for this position. As can be seen in the following payoff chart, the call option is neither profitable nor loss making to the buyer. Hence it is At the money.

Same thing goes for the buyer of the Put Option, but on the reverse side of the payoff function. Taking the same example above, we can again check the following pay off function for a Put option, where the strike price is same as the underlying's spot price. . As seen above, the position is neither profitable nor loss making to the Buyer of the Put option, hence "At the Money".
Please note that moneyness of options keep changing as the time passes by, and as the spot price of underlying keeps changing. Although the stike price of option usually remains contant during the lifetime (unless there is some corporate action), but something which is in the money today, may be out of money tomorrow. See the related articles for other Moneyness - Out of the Money and In the Money