How Does Implied Volatility Specifically Affect the Pricing of an ATM Option?

Implied volatility (IV) has the greatest impact on the price of ATM options because they have the highest proportion of time value. As IV increases, the market expects larger price swings, increasing the probability of the ATM option moving ITM.

This increased probability directly inflates the time value component of the ATM option's premium more significantly than ITM or deep OTM options.