Strike price

A strike price is the fixed price at which the holder of an option can buy the underlying stock (for a call) or sell it (for a put) if the option is exercised. It is set when the option is listed and does not change over the contract's life, except for corporate-action adjustments.

How it works

Exchanges list a range of strikes for each expiration, at intervals that are generally tighter for lower-priced and heavily traded stocks. New strikes are added as the stock moves. The relationship between the strike and the current stock price sets an option's moneyness:

When a company does a stock split, existing options are adjusted by the Options Clearing Corporation. In a whole-number split such as 2-for-1, holders typically end up with more contracts at a proportionally lower strike, so the economic value is unchanged.

Why it matters for traders

Strike choice is the main trade-off in options: lower-strike calls cost more but need less of a move to pay off; higher-strike calls are cheap but often expire worthless. Strikes with large open interest can also attract attention around expiration, since hedging by dealers near those levels can affect how the stock trades.

Example

Contoso Robotics (CTSO) trades at $62. Its next monthly expiration shows strikes at $55, $60, $65 and $70.

• The $60 call is $2 in the money and might cost $4.10.
• The $70 call is $8 out of the money and might cost $0.60.

A buyer of the $70 call needs CTSO above $70.60 at expiration to profit, a rise of about 14%.

FAQ

Can the strike price of an option change?

Not under normal conditions. Strikes and contract terms are adjusted only for corporate actions such as splits, special dividends, mergers or spin-offs.

How do I pick a strike price?

There is no single right answer. Traders weigh cost, the move they expect, and the time left; deep in-the-money strikes behave more like stock, while far out-of-the-money strikes behave more like lottery tickets.