Why options have a higher trading volume when they are at the money? I can imagine people getting interested for ITM options because they have intrinsic value and also OTM options because they are cheap, but why is the volume highest for ATM options
asked Jan 24, 2014 at 16:47
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1 Answer
This is still unknown.
One theory is that the risk adjusted premium is at an equilibrium allowing the seller and buyer to receive the best risk-adjusted premium.
Deep in the monies have lower premiums, so this spurns sellers. Deep out the monies have lower probabilities of expiring in the money, so this spurns buyers.
Risk adjusted, not at the monies cost more.