What Is Strike Price?
The strike price (or exercise price) is the predetermined price at which an options holder can buy (call) or sell (put) the underlying asset. The relationship between the strike price and the current market price determines the option's moneyness: in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM).
How Strike Price Works
For calls: ITM when spot > strike, ATM when spot ≈ strike, OTM when spot < strike. For puts: ITM when spot < strike, ATM when spot ≈ strike, OTM when spot > strike. ITM options have intrinsic value (they're already profitable if exercised), while OTM options have only time value (they need price to move to become profitable).
Why It Matters for Traders
Strike selection is one of the most important decisions in options trading. OTM options are cheaper but less likely to profit; ITM options are more expensive but have higher probability. The optimal strike depends on your thesis: aggressive plays use OTM strikes for maximum leverage, while hedging uses ATM or slightly OTM strikes for cost-effective protection.
