Strike Price
The price at which an option can be exercised.
The strike price (also called the exercise price) is the predetermined price at which an option holder can buy or sell the underlying asset. For a call option, it is the price you can buy shares at. For a put option, it is the price you can sell shares at.
Why It Matters
The strike price is the single biggest factor in determining an option's cost, risk profile, and probability of profit. Choosing the right strike is a core skill. A strike too far out of the money costs less but has a lower probability of being profitable. A strike deep in the money costs more but moves more like the stock itself.
Strike selection also determines your breakeven point, which directly affects how much the stock needs to move for your trade to make money. Every options strategy — from covered calls to iron condors — requires deliberate strike selection.
How It Works
Exchanges list multiple strike prices for each expiration date. The available strikes are typically set at standard intervals: $1 apart for lower-priced stocks, $2.50 or $5 apart for mid-range stocks, and $5 or $10 apart for higher-priced stocks. Highly liquid names like SPY may have strikes every $1 across a wide range.
The relationship between the strike price and the current stock price determines the option's moneyness:
- In the money (ITM): Call strike is below the stock price; put strike is above the stock price
- At the money (ATM): Strike is approximately equal to the stock price
- Out of the money (OTM): Call strike is above the stock price; put strike is below the stock price
The further ITM the strike, the higher the premium (because it has intrinsic value). The further OTM, the cheaper the premium (because the stock needs a bigger move to reach it).
Quick Example
Stock ABC trades at $100. Available call strikes might be $90, $95, $100, $105, $110.
- The $90 call (deep ITM) might cost $12.00 — it has $10 of intrinsic value built in
- The $100 call (ATM) might cost $3.50 — all extrinsic value
- The $110 call (OTM) might cost $0.80 — cheap but needs a 10% move to have any intrinsic value
If you buy the $105 call for $1.50, your breakeven at expiration is $106.50 (strike + premium). The stock must rise above $106.50 for you to profit.