medium · FRM Part 1 Financial Markets and Products
What is the primary reason why time value is greatest for an at-the-money (ATM) option?
- The uncertainty regarding whether the option will expire ITM or OTM is at its peak.
- ATM options carry the highest intrinsic value of any given strike price.
- ATM options are simply the cheapest options to buy, which attracts the most speculators.
- Interest rate changes have a larger pricing impact on ATM options than on deep ITM options.
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