Near the Money

A “near-the-money” option is one whose strike price is very close to the current market price of the underlying security. Because the market price rarely equals a strike exactly, traders often refer to options that are just above or below the underlying price as near-the-money (NTM). This state of moneyness sits between at-the-money (ATM), in-the-money (ITM), and out-of-the-money (OTM).

Key points

• Near-the-money options have strike prices close to the underlying price — often within a few cents to under about $0.50, though there is no formal cutoff.
• Traders commonly use NTM options instead of exact ATM strikes because exact matches are uncommon.
• NTM options typically command higher premiums than far OTM options because they retain significant time (extrinsic) value and, if slightly ITM, some intrinsic value.
• Delta for ATM options is about 0.5 (call) and −0.5 (put). NTM deltas vary depending on how close the option is to the strike.

How it works

Moneyness describes an option’s relationship to the underlying asset price:
* Call option:
* ITM: strike < market price
* OTM: strike > market price
* Put option:
* ITM: strike > market price
* OTM: strike < market price

An NTM option’s strike can be slightly above (for calls) or below (for puts) the underlying price. If it’s slightly ITM, it includes intrinsic value; if slightly OTM, it may have primarily extrinsic (time) value.

Example: If a stock trades at $20.00, a $19.80 strike call is near the money — it’s only $0.20 away from the stock price.

Pricing and Greeks

• Premiums: ATM and NTM options tend to have higher premiums than far OTM options because they contain more extrinsic value and a greater chance of finishing ITM.
• Delta: ATM options typically have a delta ≈ 0.5 for calls; NTM options’ deltas will be slightly higher or lower depending on proximity to the strike.
• Theta (time decay): ATM and NTM options exhibit the fastest time decay because their extrinsic value is the largest portion of the premium.

Why traders use near-the-money options

• Liquidity: NTM strikes often attract more volume and tighter spreads, making them practical for entering and exiting positions.
• Balance of risk/reward: NTM options offer meaningful leverage with a reasonable probability of moving ITM before expiration.
• Strategy flexibility: Many spreads, hedges, and short-term directional trades are constructed around ATM/near-ATM strikes to optimize payoff profiles.

Takeaway

Near-the-money options are widely used in options trading because they combine significant time value, meaningful probability of finishing ITM, and strong liquidity. Understanding how NTM differs from ATM, ITM, and OTM — and how Greeks like delta and theta behave near the strike — helps traders choose strikes that align with their risk tolerance and strategy.