Strike price

What the strike price means

The strike price, also called the exercise price, is the fixed price written into an option contract at which the holder has the right to buy or sell the underlying asset. For a call option it is the price at which you may buy. For a put option it is the price at which you may sell. The strike is agreed when the contract is created and does not change during the life of the option.

Every option chain you see on a trading platform is organized by strike. For one underlying share and one expiry date there are many strikes listed in regular steps, for example every 1, 2.5 or 5 units depending on the share price. Each strike has its own call and put, each with its own price (the premium).

Option buyers, sellers and anyone using options for hedging all start by choosing a strike. The choice shapes the cost, the probability of profit, the potential reward and the amount of risk.

How it works

The strike is compared with the current price of the underlying, which is called the spot price. That comparison gives the option its moneyness.

• In the money (ITM): a call with a strike below spot, or a put with a strike above spot. It has intrinsic value.
• At the money (ATM): strike roughly equal to spot.
• Out of the money (OTM): a call with a strike above spot, or a put with a strike below spot. It has no intrinsic value, only time value.

At expiry, intrinsic value is calculated like this.

• Call: the greater of (spot - strike) and zero.
• Put: the greater of (strike - spot) and zero.

Before expiry the premium equals intrinsic value plus time value. The further the strike is from spot, the lower the chance that the option ends up in the money and the cheaper it usually is. Strikes closer to spot cost more but respond more strongly to price changes, which is reflected in a higher delta, the option's sensitivity to the underlying.

Exercise style and settlement matter too. Some options are settled by delivering shares, others in cash.

A worked example

The numbers are illustrative. A share trades at 100. You look at call options expiring in two months.

• 95 strike call: premium 7.50
• 100 strike call: premium 4.00
• 110 strike call: premium 1.20

You buy one 110 call. One equity option contract commonly covers 100 shares, so the cost is 1.20 × 100 = 120, plus fees.

Break-even at expiry = strike + premium = 110 + 1.20 = 111.20.

Outcomes at expiry:

• Share at 105: the call expires worthless. Loss = the whole premium, 120.
• Share at 111.20: intrinsic value equals the premium. Result is about zero before fees.
• Share at 120: intrinsic value = 120 - 110 = 10 per share. Profit = (10 - 1.20) × 100 = 880.

Now compare with the 95 strike call. It costs 7.50 × 100 = 750 and needs the share to reach 102.50 to break even, but it has real value already because the share is above the strike. The lower strike costs more and carries more cash at risk, while the higher strike is cheaper but needs a bigger move.

Why it matters

The strike decides what you are paying for. A deep in-the-money option behaves a lot like the underlying shares at a smaller cost. An out-of-the-money option is a leveraged bet on a larger move and often expires worthless. A sensible choice depends on your view, the time to expiry and how much of the premium you can afford to lose.

For sellers, the strike is the level at which they might be obliged to buy or deliver the shares. A seller of a put with a 90 strike takes on the obligation to buy at 90 if the option is exercised, however low the price falls.

Strike spacing, liquidity at each strike and bid-ask spreads also differ between brokers' option offerings and exchanges.

How to use it in practice

1. Decide the view and time frame first: direction, size of the expected move and the date by which it should happen.
2. Read the option chain and compare several strikes for the same expiry.
3. Calculate break-even for each: strike plus premium for calls, strike minus premium for puts.
4. Check volume, open interest and bid-ask spread at the strike. Thin strikes are expensive to trade.
5. Know whether the contract is American style (exercisable any time) or European style, and whether it settles in cash or shares.
6. Confirm the contract multiplier and any adjustments after splits or dividends.
7. Check the fee schedule for the per-contract commission and exercise or assignment fees.

Common mistakes and misconceptions

• Choosing a strike only because it is cheap. Far out-of-the-money options are cheap because they rarely pay.
• Forgetting the multiplier, so the real cost is a hundred times the displayed premium.
• Confusing strike with break-even. The premium paid shifts the break-even away from the strike.
• Assuming an option in the money at expiry is always profitable. If the intrinsic value is below the premium paid, the trade still loses.
• Ignoring that sellers can be assigned early on American-style options.

Risks and limitations

Buyers can lose the entire premium, and short-dated, out-of-the-money options often do. Sellers of uncovered calls face theoretically unlimited loss, and uncovered puts can lose heavily if the underlying falls. Options are complex, time decay works against buyers, and implied volatility changes can move prices even when the underlying does not. Rules for retail access to options differ by country and broker, and this entry is educational, not a recommendation of any strike or strategy.

How Brokeli looks at it

We check whether a broker offers listed options or option-style products, the markets covered, the commission per contract and the fees for exercise and assignment. Contract details such as strikes available, multipliers and settlement come from the broker's own documentation and are held in published research snapshots, so comparisons rest on the same verified inputs. Availability for retail clients varies by country.