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  • August 1, 2021
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ATM Forward Put Option

An at-the-money forward put option is a put with a strike price equal to the forward price of the underlying stock. Mathematically, the strike price of this option is given by:

K = erT S

Where: K denotes the strike price; r is the risk-free rate; T is time to expiration; S is the current stock price.

For example, if the forward price of XYZ stock is $50, while its underlying price is currently at $47.80, the risk free rate is 9%, and the put option expires in 6 months, then the option is an ATM forward call because:

erT S = exp (9% × 6/12) × 47.80 = 50

That is, the forward price of the stock is equal to the option’s strike price.


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