Finance

Strike Price

The fixed price at which an option contract can be exercised — bought (call) or sold (put). Strike price relative to market price determines whether an option is in, at, or out of the money.

How strike price works

For a call option:

  • Holder has right to BUY at strike price.
  • Profitable if market price exceeds strike at expiration.
  • Higher strikes mean lower premium; less likely to be profitable.

For a put option:

  • Holder has right to SELL at strike price.
  • Profitable if market price falls below strike at expiration.
  • Lower strikes mean lower premium; less likely to be profitable.

In the money / at the money / out of the money

Three classifications:

  • In the money (ITM) — option has intrinsic value at current price.
  • At the money (ATM) — strike approximately equals current price.
  • Out of the money (OTM) — option has no intrinsic value.

For a call with $100 strike, stock at $110: in the money. Stock at $100: at the money. Stock at $90: out of the money.

Strike selection

Several considerations:

  • Higher strikes (for calls) cost less but are less likely to profit.
  • Lower strikes (for puts) cost less but less likely to profit.
  • At-the-money options balance probability and cost.
  • Deep out-of-the-money is leveraged speculation.
  • Deep in-the-money behaves more like the underlying.

Strategy depends on view, time horizon, and risk preference.

Strike spacing

Different markets:

  • Standard equity options — typically $1, $2.50, or $5 strikes depending on price.
  • Index options — broader spacing.
  • Crypto perp options — varies by exchange.

Available strikes constrain strategy choices.

What individuals should know

For options traders:

  • Strike choice is one of the most-important decisions.
  • Probability of profit vs. cost — trade-off.
  • Match strike to your view and time horizon.
  • Don't always choose deep OTM — most lose money.

Strike price is the foundational parameter of options strategies. Different strike selections produce dramatically different risk-reward profiles for the same directional view.