An around-the-money option (ArTM option) is an option that has its value about to change, favorably or unfavorably, depending on direction. This situation arises when the underlying asset price is close to the option’s strike price. The state of moneyness of an option, that is, the distance of its underlying price from its strike price, far or close or zero, has a great impact on the value of the option. Around-the-money means that an option or an options book is likely to produce profits or incur losses with the movement of its underlying (which is currently very close from either direction- from above or below).
In addition, the value of an option also depends on the number of days left to the expiration of the contract, the volatility of the underlying price, and to an extent, the risk-free interest rates and dividends, if any.
Comments