Strike Price Explained — How to Choose the Right One
Learn what a strike price is and how to choose the right one for your options trade. See how different strikes change your cost, breakeven, and probability of profit.
We're recording short 2-3 minute video explainers for every lesson. The full written guide is ready below. Bookmark this page — the video will appear right here when it's ready.
Imagine a game show. Three doors. Behind each one is a deal on the same house in the same neighborhood.
Door 1: Buy the house at $80,000. Costs you $22,000 upfront.
Door 2: Buy the house at $100,000. Costs you $2,000 upfront.
Door 3: Buy the house at $120,000. Costs you $200 upfront.
Same house. Same neighborhood. Three completely different deals. Door 1 is expensive but the house only needs to be worth $102,000 for you to profit. Door 3 is cheap but the house needs to jump past $120,200 before you see a penny.
That is what choosing a strike price feels like. And it is the single decision that shapes everything about your trade.
Premium: $2,000 · Strike: $100,000 · Expiration: 6 months
The $100,000 was the strike price — the locked-in purchase price. What if you had locked in $80,000? Or $120,000? Different price, different cost, different odds.
Three Strikes, Three Different Trades
Apple is at $100. You want to buy a call because you think the stock is heading higher. Here are three choices.
The $90 call costs $11.50 per share ($1,150 per contract). This strike is already $10 below the stock price. It has $10 of built-in value right from the start. Expensive, but Apple only needs to get past $101.50 for you to profit. Conservative. High probability.
The $100 call costs $3.00 per share ($300 per contract). This strike matches the current stock price. No built-in value, but a reasonable price. Your breakeven is $103. The middle ground.
The $110 call costs $0.60 per share ($60 per contract). This strike is $10 above the stock price. Apple has to climb past $110 before this contract has any real value. Your breakeven is $110.60. Cheap, but the stock needs a 10% move. Low probability, but if Apple gets there, the percentage return is massive.
Same stock. Same direction. Completely different risk profiles, just because of the strike price.
The Trade-Off
In the call options lesson, we said lower strikes cost more and higher strikes cost less. Now you can see exactly why.
Lower strikes give you more built-in value and a higher chance of profit, but you pay for that advantage upfront. Higher strikes give you a cheaper entry but demand a bigger move from the stock. More certainty costs more money. More risk costs less.
For puts, the math flips. A $110 put on a $100 stock already has $10 of built-in value. It costs more. A $90 put is cheap because the stock has to drop past $90 before it is worth anything.
The principle does not change. You are always choosing between paying for certainty and paying less for a longer shot.
What Sellers See
Remember the seller's game from lesson five? Collect premium, hope nothing exciting happens.
Sellers love it when buyers pick strike prices that are far from the stock. If you buy that $110 call on a $100 stock, the seller collects your $60 and needs Apple to stay below $110. That is a $10 cushion. The further away the strike, the more comfortable the seller sleeps.
We will put exact numbers on this when we cover delta in a few lessons. For now, just know that sellers are thinking about probability, and distance from the stock price is how they measure it.
The Mistake I Made for Three Months
The lesson was simple. Cheap options are cheap for a reason. The market is not giving you a discount. It is telling you the odds.
Introducing Our Tracking Trade
For the next several lessons, we are going to follow one specific trade so you can see each new concept applied to the same position.
Apple at $100. A $105 call expiring in 45 days. Premium of $3.00 per share, so $300 per contract.
This is a slightly out-of-the-money call. The stock needs to get past $105, and then past $108 for you to break even. Hold that in the back of your mind. Every lesson from here is going to add another layer to this trade.
Key Takeaways
- The strike price is the locked-in buy/sell price — it shapes your cost, breakeven, and probability
- Lower strikes on calls cost more but need less movement. Higher strikes cost less but need bigger moves.
- Cheap options are cheap because the odds are against them — the market is pricing in probability
- Pick a strike based on your outlook and risk tolerance, not just the lowest price tag
Pop Quiz — Let's see if this stuck.
Apple is at $100. Which call costs more: the $95 or the $110? Why?
The $95 call costs more. It already has $5 of built-in value (stock is $5 above the strike), so you are paying for that advantage. The $110 call is cheap because Apple needs to climb 10% before it is worth anything.
Your $110 call cost $0.60. What does Apple need to reach for you to break even?
$110.60. Strike ($110) plus premium ($0.60) equals $110.60. Apple needs a 10.6% move just to break even.
Bottom Line
The strike price is the locked-in price at which you can buy or sell the stock. It is the most important decision in any options trade because it determines your cost, your breakeven, and your probability of making money. Lower strikes on calls cost more but need less movement. Higher strikes cost less but need bigger moves. The same trade-off applies in reverse for puts. Pick a strike that matches your outlook and your risk tolerance. Not just the one that looks cheapest on the screen.
Next up: Expiration Dates →
You just picked a price. Now you need to pick a deadline. And that deadline changes everything about the trade.