Strike price explained

The strike price is the fixed price at which an options contract gives you the right to buy (call) or sell (put) the underlying stock. It's one of four core components of every options contract, and the choice of strike is one of the most important decisions you make when structuring a trade.

What the strike price determines

Your choice of strike affects virtually every aspect of your options trade:

• Your breakeven price, where the stock needs to be for you to profit
• Your probability of profit, further OTM means higher probability of keeping premium as a seller; lower probability of profit as a buyer
• Your premium cost (or income), ATM strikes carry the most extrinsic value; OTM strikes progressively less
• Your delta, how much the option moves relative to the stock

How strikes are listed on an options chain

When you open an options chain for any stock, you'll see a list of available strike prices above and below the current stock price. The spacing between strikes depends on the stock's price and liquidity:

Strike selection by strategy

Different strategies call for different strike placements:

Income strategies (selling premium): Most premium sellers target OTM strikes, typically the 0.20–0.30 delta range. This provides approximately a 70–80% probability of the option expiring worthless.

• Covered call: sell OTM call strike above your purchase price
• Cash-secured put: sell OTM put strike below the current price at a level where you'd be happy to own the stock
• Iron condor: sell OTM strikes on both sides with a buffer from the current price

Directional strategies (buying premium):

• ATM options (~0.50 delta): Most expensive but move most with the stock. Best for high-conviction directional trades.
• Slightly OTM options (~0.30–0.40 delta): Balance of leverage and cost.
• Far OTM options (~0.10–0.20 delta): Cheap lottery tickets. Need very large moves to profit.

Spread strategies: When buying spreads, you choose two strikes, one long and one short. The distance between them (spread width) determines your maximum profit and loss.

The 30-delta rule

A common starting point for strike selection in income strategies is the 30-delta strike:

• Approximately 30% probability of expiring ITM (70% probability of profit for the seller)
• Meaningful premium collection without being too close to the stock price
• Balances probability and reward

The specific delta you target can be adjusted based on your market view and risk tolerance, more bullish means selling puts at higher deltas (closer to the stock); more conservative means lower deltas (further from the stock).

Breakeven at expiration

Your breakeven depends on both the strike and the premium:

Example: You sell a $195 covered call on AAPL (currently at $185) for $2.50.

• Breakeven on the covered call: $195 + $2.50 = $197.50 (above which you'd have made more without the call)
• Effective sell price if called away: $197.50

Related terms: Moneyness, ITM, ATM, OTM, delta, premium, breakeven

Try it on Stryke: Browse and filter options by strike, delta, and premium in the Options Screener.

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