MAM
At The Money: Definition, how it works and example
At the money (ATM) is a term used in options trading to describe a situation where the strike price of an option is exactly equal to the current market price of the underlying asset. This means that neither call nor put options have intrinsic value when they are ATM; their value is entirely derived from time value or extrinsic value.
For example, if a stock is trading at ₹100, then a call option and a put option with a strike price of ₹100 are both considered ATM.
How It Works
The concept of ATM in F&O is crucial for understanding options pricing and trading strategies. When an option is ATM:
• Intrinsic Value: The intrinsic value is zero because exercising the option does not yield any profit. For a call option, this means the market price is not above the strike price; for a put option, it means the market price is not below the strike price.
• Extrinsic Value: The entire value of an ATM option comes from its extrinsic value, which reflects factors such as time until expiration and implied volatility. As expiration approaches, the extrinsic value diminishes due to time decay.
• Sensitivity to Price Changes: ATM options are highly sensitive to changes in the underlying asset’s price. They typically have a delta of approximately ±0.50, meaning that for every ₹1 change in the underlying asset’s price, the option’s price will change by about ₹0.50.
Consider a stock currently trading at ₹150. If you purchase an ATM call option with a strike price of ₹150, here’s how it could play out:
• If the stock price rises to ₹160, you can exercise your option to buy at ₹150 and sell at ₹160, realizing a profit of ₹10 per share (minus any premium paid for the option).
• Conversely, if the stock price falls to ₹140, your call option would expire worthless since you wouldn’t exercise it at a loss. Your loss would be limited to the premium paid for the option.
How to use ATM in Trading Strategies
ATM options are often used in various trading strategies due to their unique characteristics:
• Straddles and Strangles: Traders may buy both an ATM call and put option simultaneously to profit from significant price movements in either direction.
• High Trading Volume: Options that are ATM tend to see higher trading volumes as traders anticipate volatility, making them attractive for short-term strategies.
• Risk Management: While they offer opportunities for profit through volatility, ATM options also carry higher risks compared to in-the-money (ITM) options since they lack intrinsic value at purchase.
How is ATM different from ITM and OTM in terms of risk and reward?
When trading options, understanding the distinctions between At The Money (ATM), In The Money (ITM), and Out Of The Money (OTM) options is crucial for assessing risk and reward. Each type of option has unique characteristics that influence their potential outcomes.
• In The Money (ITM): An option is considered ITM when it has intrinsic value. For a call option, this means the strike price is below the current market price of the underlying asset. For a put option, it means the strike price is above the current market price.
• At The Money (ATM): An option is ATM when its strike price is equal to the current market price of the underlying asset. ATM options have no intrinsic value; their worth is derived solely from extrinsic value.
• Out Of The Money (OTM): An option is OTM when it has no intrinsic value. For a call option, this occurs when the strike price is above the current market price; for a put option, it occurs when the strike price is below the market price.
Risk and reward analysis for ATM, ITM, OTM
| Option type |
Risk level |
Reward potential |
Characteristics |
| ITM | Low | Moderate | Less risky because they have intrinsic value. They provide some return with minor favourable movements but require a higher upfront premium. This leads to lower percentage returns compared to OTM options |
| ATM | Moderate | Balanced | Offer a balanced approach to risk and reward. They are sensitive to price changes and have high extrinsic value. If the underlying asset does not move significantly, ATM options can expire worthless, resulting in total loss of the premium paid |
| OTM | High | High | They have lower premiums since they lack intrinsic value and require significant movement in the underlying asset’s price to become profitable. However, if such movement occurs, OTM options can yield substantial percentage returns |
Factors to consider when choosing between ITM, ATM, and OTM options
When deciding between In The Money (ITM), At The Money (ATM), and Out Of The Money (OTM) options, traders should evaluate several key factors that influence their risk tolerance, market expectations, and overall trading strategy.
1. Risk Tolerance
• ITM Options: Generally considered less risky due to their intrinsic value. They provide a buffer against total loss if the underlying asset moves unfavorably. Suitable for conservative traders looking for steady returns.
• ATM Options: Offer a balanced risk-reward profile. While they have no intrinsic value at the time of purchase, they can still provide significant returns if the underlying asset moves favorably. They are suitable for traders with moderate risk tolerance.
• OTM Options: High-risk, high-reward instruments. They have no intrinsic value and require significant price movement in the underlying asset to become profitable. Best for aggressive traders willing to accept the possibility of total loss.
2. Market Expectations
• Bullish Outlook: If you expect a strong upward movement in the underlying asset, OTM options may be appealing due to their potential for high returns. Conversely, if you expect moderate increases, ATM options could be more suitable.
• Bearish or Sideways Outlook: For a bearish view or if you anticipate minimal movement, ITM options might be preferable as they provide some return even in sideways markets.
3. Time Until Expiration
• Time Decay (Theta): ATM options experience rapid time decay as expiration approaches, which can erode their value quickly if the underlying asset does not move significantly. ITM options tend to hold value better over time due to their intrinsic component.
• Longer Time Horizons: If you have a longer time until expiration, OTM options may be more attractive as they allow for potential price movements without immediate pressure from time decay.
5. Premium Costs
• Cost of Entry: ITM options typically have higher premiums due to their intrinsic value, making them more expensive upfront. ATM options are usually priced in between ITM and OTM options, while OTM options are the cheapest but come with higher risk.
• Return on Investment: Assess the potential return relative to the premium paid. OTM options may offer higher percentage returns if the underlying asset moves favourably, but they also carry a higher likelihood of expiring worthless.
Wrapping up
Understanding ATM options is essential for traders looking to navigate the complexities of options markets effectively. They provide opportunities for profit through volatility while also presenting risks that must be carefully managed.
Disclaimer: This article does not have journalistic/ editorial involvement of indiantelevision.com. indiantelevision.com group or its websites does not endorse/ subscribe to the contents of the article/advertisement and/or views expressed here in.
The reader is further advised that Online Casino, Betting, Online Gaming , Crypto products, Financial Investments/Engagement , NFTs, Products associated with health, wellness, and food are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions or risk associated with health conditions.
Indiantelevision.com group shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the views, opinions, announcements, declarations, affirmations etc., stated/featured in the same. The decision to read hereinafter is purely a matter of choice and shall be construed as an express undertaking/guarantee in favour of indiantelevision.com (indiantelevision.com group) of being absolved from any/ all potential legal action, or enforceable claims. The content may be for information and awareness purposes and does not constitute financial advice.
Buying family medical insurance online in India has become a common option for individuals who want to secure health coverage for multiple family members under a single policy. However, many buyers are unsure about the exact steps involved in selecting and purchasing the right plan online.
In this guide, you will know the step-by-step process of buying family medical insurance online in India, along with the key factors to review before purchasing a suitable policy.
Step 1: Assess Your Family’s Healthcare Needs
Before buying online health insurance, check the healthcare needs of all family members. Check age, existing illnesses, regular medicines, and the likely need for hospital care later. This helps in selecting a suitable sum insured, policy type, and level of cover. It also reduces the chance of buying a plan that appears suitable but does not meet actual medical needs.
Step 2: Visit the Insurance Company’s Official Website
After understanding the family’s needs, visit the insurer’s official website and read the plan details carefully. Use the official platform to review eligibility, policy wording, waiting periods, cover details, exclusions, and renewal terms.
This step gives a clearer understanding of how the policy works before payment is made. It also helps avoid confusion caused by incomplete summaries on other pages.
Step 3: Compare Available Family Health Insurance Plans
A family medical insurance policy should be compared on factors beyond the premium. Review the sum insured, hospital network, room rent limits, pre- and post-hospitalisation cover, daycare treatment coverage, and waiting periods. It is also important to check treatment sub-limits and specific policy conditions.
Careful comparison helps determine whether a plan provides balanced coverage and whether its terms are suitable for the healthcare needs of the entire family.
Step 4: Choose the Right Policy and Start the Online Purchase
Once the options have been compared, select the policy that best fits the family’s medical needs and budget. Before starting the application, review the covered members, policy term, benefits, and main conditions again. This is an important stage because errors here can lead to the wrong cover amount, an unsuitable variant, or missing details that create problems during policy use.
Step 5: Calculate the Premium Using an Online Calculator
Use the online premium calculator before making the final choice. Enter the correct details, including age, city, number of insured members, and selected cover amount. The result helps in understanding the expected premium and whether the policy fits the annual budget. This step is useful because it allows cost and coverage to be reviewed together, instead of choosing a plan only because the premium looks lower.
Step 6: Fill in Personal and Medical Details
When filling in the proposal form, provide accurate details for each insured member. This includes name, date of birth, contact details, medical history, ongoing treatment, and previous insurance information if required.
Every answer should be complete and truthful. Incorrect or missing details can create difficulty later. Before you submit the form, read every section again and correct any mistakes.
Step 7: Make Payment Through the Secure Payment Gateway
After checking the form, go to the payment page and complete the transaction through the secure payment gateway. Review the premium, policy term, and entered details once more before confirming payment.
After the transaction is completed, save the receipt, reference number, or confirmation message carefully. Keeping this record is useful if you need to track the purchase or follow up on policy issuance later.
Step 8: Download and Keep Your Policy Document Safely
Once the policy is issued, download the policy document, schedule, and any related papers without delay. Read them carefully to confirm member names, policy period, sum insured, and major terms. Save a digital copy in a secure folder and keep a printed copy if needed. Proper record keeping makes future renewals, document checks, and policy servicing easier and more organised when information is required quickly.
Conclusion
Buying health cover online becomes easier when you handle each step with attention. From checking your family’s needs to reading the final document, every stage helps you make an informed choice. A careful approach can reduce mistakes, improve your understanding of policy terms, and help you choose coverage that matches your household’s medical needs, financial capacity, and long-term healthcare planning in a reliable way for your family over the long term.
