Strike price (also called exercise price) is the predetermined price at which an option holder can buy (for calls) or sell (for puts) the underlying asset. When you buy an option, the strike price is fixed and remains constant throughout the option’s life. Your profit depends on the relationship between strike price and the underlying asset’s market price.
- Fixed price for buying (call) or selling (put) the asset
- Determines if option is ITM, ATM, or OTM
- Closer to current price = more expensive premium
How Strike Price Works
Strike price determines option profitability:
Strike Price Example:
Stock XYZ: Currently trading at $100
Call Options Available:
Strike $90 (ITM) - Premium $12 - Already $10 in profit
Strike $100 (ATM) - Premium $5 - At current price
Strike $110 (OTM) - Premium $2 - Needs $10 move to profit
Put Options Available:
Strike $110 (ITM) - Premium $12 - Already $10 in profit
Strike $100 (ATM) - Premium $5 - At current price
Strike $90 (OTM) - Premium $2 - Needs $10 drop to profit
Quick Reference: Strike Selection
| Strike Type | Cost | Win Rate | Best For |
|---|---|---|---|
| Deep ITM | High | Highest | Stock replacement |
| ITM | Medium-High | High | Conservative |
| ATM | Medium | Moderate | Balanced |
| OTM | Low | Lower | Aggressive |
| Deep OTM | Very Low | Lowest | Lottery tickets |
Example: Strike Price Impact
Comparing Call Strikes:
| Strike | Premium | Breakeven | If Stock Hits $120 |
|---|---|---|---|
| $90 ITM | $12 | $102 | $18 profit (150%) |
| $100 ATM | $5 | $105 | $15 profit (200%) |
| $110 OTM | $2 | $112 | $8 profit (300%) |
OTM has highest percentage return but requires biggest move.
Strike price is the fixed price at which you can exercise an option. For calls, profit when stock exceeds strike. For puts, profit when stock falls below strike. Choose strikes based on your outlook: ITM for safety, OTM for leverage.
Strike Price Categories
In The Money (ITM)
- Calls: Strike below current stock price
- Puts: Strike above current stock price
- Has intrinsic value already
At The Money (ATM)
- Strike equals or nearest to current stock price
- All premium is time value
- Highest time value
Out of The Money (OTM)
- Calls: Strike above current stock price
- Puts: Strike below current stock price
- No intrinsic value, only time value
Choosing Strike Prices
For Directional Trades
- Strong conviction: OTM for leverage
- Moderate conviction: ATM for balance
- Conservative: ITM for higher win rate
For Income Strategies
- Covered calls: OTM to allow some upside
- Cash-secured puts: OTM to buy at discount
For Hedging
- Protective puts: OTM for cheaper insurance
- Or ATM for tighter protection
Common Mistakes
-
Always buying cheapest (deep OTM) – Lottery tickets rarely pay off.
-
Ignoring delta – Lower delta = lower probability of profit.
-
Not considering breakeven – Factor in premium paid.
-
One size fits all – Different strategies need different strikes.
How JournalPlus Tracks Strikes
JournalPlus logs strike selection for each options trade, helping you analyze which strike prices perform best for your trading style and strategies.
