Define: Atthemoney Forward Option

Atthemoney Forward Option
Atthemoney Forward Option
What is the dictionary definition of Atthemoney Forward Option?
Dictionary Definition of Atthemoney Forward Option

At-the-money forward option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on a future date. The strike price of the option is set at the current market price of the underlying asset, making it “at-the-money.” This type of option is often used by investors and hedgers to manage risk and speculate on the future price movements of the underlying asset.

Full Definition Of Atthemoney Forward Option

An At-the-money Forward Option is a financial derivative contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price (strike price) on a future date. The strike price is set at the current market price of the underlying asset at the time the option is entered into.

This type of option is considered “at-the-money” because the strike price is set at the same level as the current market price of the underlying asset. As a result, the option has no intrinsic value at the time of issuance.

The holder of an at-the-money forward option can exercise the option at any time before the expiration date, allowing them to profit from any future price movements of the underlying asset. If the market price of the underlying asset is above the strike price for a call option, or below the strike price for a put option, the holder can exercise the option and buy or sell the asset at a profit.

However, if the market price of the underlying asset does not move significantly, the option may expire worthless, resulting in a loss for the holder. The option writer, on the other hand, receives a premium from the holder in exchange for taking on the obligation to buy or sell the asset if the option is exercised.

At-the-money forward options are commonly used by investors and traders to hedge against price fluctuations in the underlying asset or to speculate on future price movements. They are typically traded on organized exchanges or over-the-counter markets, and their terms and conditions are governed by legal agreements between the parties involved.

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This glossary post was last updated: 29th March 2024.

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