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Why Is the Extrinsic Value Highest for ATM Options?

Extrinsic value is highest for ATM options due to the maximum uncertainty regarding their final ITM or OTM outcome.
Greeks.Live24.11.25

Why Is the Extrinsic Value Highest for ATM Options?

The extrinsic value is highest for ATM options because they have the highest uncertainty regarding their final outcome. ATM options are precisely at the point where the underlying price can move either way, making them ITM or OTM.

This maximum uncertainty translates into the highest probability component (time value and volatility value), which is the extrinsic value.

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