What Is a Strike Price in Options Trading?

Short answer: The strike price is the fixed price at which an option lets you buy (for a call) or sell (for a put) the underlying, and it determines whether the option has intrinsic value.

The Basic Definition

Every option has a strike price agreed when the contract is created. For a call, it is the price at which the buyer can buy the underlying; for a put, the price at which the buyer can sell. The relationship between the strike and the current market price drives the option's value.

In, At, and Out of the Money

A call is in the money when the underlying is above the strike, at the money when they are roughly equal, and out of the money when the underlying is below the strike. For puts it is reversed. In-the-money options have intrinsic value; out-of-the-money options have only time value.

How Strikes Are Listed

Exchanges list multiple strike prices above and below the current market price at fixed intervals, so traders can choose how aggressive or conservative they want to be. Many strikes exist for each expiry, giving a range of risk-reward choices.

Effect on Premium

The strike affects the premium. Out-of-the-money options are cheaper because they need a bigger move to pay off, while in-the-money options cost more because they already have intrinsic value. Choosing a strike is choosing your trade-off between cost and probability.

Choosing the Right Strike

A strike near the current price balances cost and sensitivity. Far out-of-the-money strikes are cheap but rarely pay off, which is why beginners who buy them often lose. Deep in-the-money strikes cost more but behave more like the underlying with less time decay.

Practical Tip

Match the strike to your view and risk appetite. Decide how big a move you realistically expect and over what time, then pick a strike that profits if you are right without needing an unrealistic move. The strike is one of the most important decisions in any options trade.

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.