ATM Spread

The ATM spread measures the bid-ask spread (as a percentage of the option's midpoint price) for at-the-money options — the strikes closest to the current stock price. ATM options are typically the most liquid in the chain, so their spread serves as a proxy for overall execution quality. An ATM spread of 1% means you'd pay about 1% in round-trip costs just from the spread; 5% or higher makes trading expensive.

ATM spreads vary dramatically across underlyings. Large-cap, heavily-traded stocks like AAPL or SPY often have ATM spreads under 0.5%, while small-cap or low-volume names can have spreads of 10% or more. For multi-leg strategies, the impact compounds: a four-leg iron condor on a stock with 3% ATM spreads would cost roughly 12% in execution costs (3% x 4 legs), potentially wiping out the entire theoretical profit.

Options Pilot's Liquidity pillar uses ATM spread as a primary metric. When the ATM spread is tight (under 2%), the system gives a higher Liquidity score, indicating that any strategy can be executed efficiently. When spreads are wide, the system may downgrade otherwise strong setups because the execution costs would eat into returns.