Strike Prices Explainer
The strike price, also called the exercise price, is the fixed price written into an option contract. A call holder may buy the underlying at the strike; a put holder may sell it there. The strike remains fixed unless the contract is adjusted under specified rules.
The relationship between strike and current market price determines moneyness. A call has intrinsic value when the underlying is above its strike, while a put has intrinsic value when the underlying is below. At-the-money and out-of-the-money contracts have no immediate exercise advantage.
Different strikes divide risk and cost differently. A lower-strike call generally costs more than an otherwise similar higher-strike call, while a higher-strike put generally costs more than a lower-strike put. Breakeven also includes the premium, not just the strike.
Exchanges list standardized strike intervals, but not every strike is equally liquid. Splits, mergers, and special distributions can produce adjusted contracts with unusual deliverables. Investors should confirm the multiplier, deliverable, spread, and open interest instead of assuming every strike represents 100 ordinary shares.
Calls use the strike for purchases; puts use it for sales.
It is distinct from the current market quote.
Market price relative to strike determines intrinsic value.
Premium still matters to total profitability.
Corporate actions can change the deliverable or multiplier.
Read the contract specification before trading.
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