Strike Price
The strike price is the fixed price at which an option holder can buy (call) or sell (put) the underlying asset.
The strike price is the line in the sand of every option. It decides whether the contract has any value at expiry, how much it costs today and how far the market must move for you to make money. Choosing it is the most important decision after choosing direction.
- Category
- Derivatives
- Reading time
- 4 min
- Also called
- Exercise price, Strike
- Updated
Strike price in plain words
The strike, or exercise, price is the per-share price at which a call owner may buy, or a put owner may sell, on exercise.1
The contract sets this price when it is created.2
Where the market trades relative to the strike decides whether the option has intrinsic value.3 See Options.
How the strike price works, step by step
Fix the strike
Each option contract specifies a strike at which it may be exercised.2
Compare with the market
A call is in the money when the market is above the strike; a put when it is below.1
Spot out-of-the-money options
A call below its strike or a put above it has no intrinsic value.1
Note at-the-money
An option is at the money when the market price equals the strike.1
Add the premium
A buyer profits only if the move beyond the strike is bigger than the premium paid.1
Know what exercise costs
With a $100 strike, exercising one call needs $10,000.1
Worked examples
Example 1 — Call break-even
+$400You buy a call with a $100 strike for $4.00. At expiry the stock is $108.
| Break-even | $100 + $4 = $104 |
| Value at expiry | $108 − $100 = $8.00 |
| Profit per contract | ($8 − $4) × 100 = $400 |
The buyer makes money only if the stock rises above the strike by more than the premium paid.1
Example 2 — In the money but losing
−$200Same call, but at expiry the stock is $102.
| Value at expiry | $102 − $100 = $2.00 |
| Premium paid | $4.00 |
| Result per contract | ($2 − $4) × 100 = −$200 |
An in-the-money option isn't profitable for the buyer until its intrinsic value is greater than the premium paid.1
Example 3 — Cost of exercising
$10,000 neededYou hold one call with a $100 strike and want to exercise.
| Shares | 100 |
| Cash needed | $100 × 100 = $10,000 |
A standard contract is 100 shares, so exercising a $100-strike call needs $10,000.1
Where the market sits vs the strike
| Aspect | Call | Put |
|---|---|---|
| In the money | Market above strike | Market below strike |
| At the money | Market equals strike | Market equals strike |
| Out of the money | Market below strike | Market above strike |
| Intrinsic value | Market − strike, if positive | Strike − market, if positive |
Choosing a strike
Cheap directional bets
Out-of-the-money strikes cost less but need a bigger move.
Higher probability trades
In-the-money strikes cost more but already have intrinsic value.
Protective puts
A put strike sets the floor price for shares you own — see Hedging.
Income strategies
Sellers pick strikes they would be willing to buy or sell at.
Advantages and disadvantages
Advantages
- Sets a clear, fixed price for buying or selling.
- Lets you tailor cost and risk by choosing different strikes.
- Makes break-even easy to calculate.
Disadvantages
- Far out-of-the-money strikes often expire worthless.
- In-the-money strikes need more capital up front.
- Prices near the strike at expiry create uncertainty (pin risk).
- Exercise can require large amounts of cash.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Ignoring the premium
Thinking any price above a call strike means profit.
Buying lottery-ticket strikes
Choosing far out-of-the-money options because they are cheap.
Forgetting automatic exercise
Being surprised by a share position after expiry.
Not budgeting for exercise
Lacking the cash to buy 100 shares per contract.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- The strike is the fixed exercise price of an option.
- Calls are in the money above the strike, puts below.
- Profit needs a move beyond the strike larger than the premium.
- Strike choice trades off cost against probability.
- Exercising one contract usually means 100 shares at the strike.
Frequently asked questions
Can the strike price change?
Which strike is best?
Is strike price the same as exercise price?
Further learning
- Options
How calls and puts work.
- Break-Even
Strike plus premium in practice.
- Hedging
Using put strikes as protection.
- Implied Volatility
Why strikes far from the market can still be pricey.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- FINRA. Options (opens in a new tab) Checked .
- Options Industry Council (OCC). What is an Option? (opens in a new tab) Checked .
- Options Industry Council (OCC). Options Pricing (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.