Why Is Extrinsic Value Highest for At-the-Money Options?
At-the-money (ATM) options have the highest extrinsic value because they have the greatest uncertainty about their expiration outcome. The underlying price is near the strike, meaning a small move can make the option ITM or OTM.
This high uncertainty translates to the highest potential for future intrinsic value, which the market prices into the time value.
