Strike Price Explained

The strike price is one of the four core components of any options contract and the first thing you choose when structuring an options trade. It determines your breakeven, your probability of profit, how much premium you pay or collect, and how the position behaves as the stock moves.

What the strike price is

The strike price (also called the exercise price) is the fixed price at which an options contract gives you the right to buy or sell the underlying stock.

For a call option: the strike is the price at which you can buy 100 shares. If you own a call with a $190 strike on AAPL, you have the right to buy 100 AAPL shares at $190, regardless of where AAPL is actually trading.

For a put option: the strike is the price at which you can sell 100 shares. If you own a put with a $170 strike on AAPL, you have the right to sell 100 AAPL shares at $170, regardless of market price.

The strike is fixed at the time you buy or sell the contract. It does not change. The stock price moves around it.

How strikes are listed on an options chain

When you open an options chain, you will see a vertical list of strike prices centered around the current stock price. Calls are listed on one side, puts on the other, with strikes running down the middle.

The spacing between available strikes depends on the stock price and trading volume:

Stocks under $25: strikes typically $0.50 or $1 apart Stocks $25 to $100: strikes typically $1 or $2.50 apart Stocks $100 to $200: strikes typically $2.50 or $5 apart Stocks above $200: strikes typically $5 or $10 apart Highly liquid ETFs (SPY, QQQ): strikes typically $1 apart

In the money, at the money, and out of the money

The relationship between the strike price and the current stock price is called moneyness. It determines how much intrinsic value the option has right now.

In the money (ITM): the strike has intrinsic value right now. For calls, this means the stock is above the strike. For puts, the stock is below the strike.

At the money (ATM): the strike is at or very near the current stock price. ATM options have maximum extrinsic value and a delta near 0.50.

Out of the money (OTM): the strike has no intrinsic value. For calls, the stock is below the strike. For puts, the stock is above the strike. OTM options are entirely extrinsic value.

Example with AAPL at $185: $175 call: in the money ($10 intrinsic value) $185 call: at the money (no intrinsic value, maximum extrinsic value) $195 call: out of the money (no intrinsic value, lower extrinsic value)

How strike selection affects your trade

The strike you choose is one of the most consequential decisions in any options trade. It affects four things simultaneously:

Premium cost or income: ATM options are the most expensive because they have the most extrinsic value. OTM options cost less. Deep ITM options cost the most overall but are mostly intrinsic value.

Probability of profit: further OTM strikes have a lower probability of expiring in the money. This means higher probability of profit for sellers (the option expires worthless) and lower probability of profit for buyers (the option never reaches profitability).

Breakeven: your breakeven equals the strike plus the premium paid (for a call buyer) or the strike minus the premium paid (for a put buyer). Different strikes produce different breakevens.

Delta: the sensitivity of the option to stock price movement. ATM options have delta near 0.50 and move roughly like owning 50 shares. OTM options have lower delta and move less per $1 of stock movement.

Strike selection for buyers vs sellers

For options buyers: the strike choice reflects how aggressive your directional bet is.

Buying an ATM call gives maximum delta exposure but costs the most. Buying an OTM call is cheaper but requires a larger stock move to profit. Deep ITM calls cost the most but behave almost like stock.

For options sellers: the strike choice reflects how much risk you are willing to accept.

Selling a closer-to-ATM strike (higher delta, say 0.40) collects more premium but has a higher probability of the stock reaching your strike. Selling a further OTM strike (lower delta, say 0.15) collects less premium but the stock has to move much more before the position is threatened.

Most income-focused options traders target strikes in the 0.20 to 0.30 delta range for short options, giving roughly 70 to 80% probability of the option expiring worthless.

Related terms: Moneyness, ITM, ATM, OTM, delta, premium, intrinsic value, extrinsic value

Try it on Stryke: Browse options chains and filter by strike and delta in the Options Screener to find the right strike for any strategy.

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