What is the strike price?
The strike price is the fixed price at which an option contract lets you buy (for a call) or sell (for a put) the underlying stock. It is one of the four things that define every option contract, along with the underlying ticker, the call/put type, and the expiration date.
How strike price affects option price
The closer the strike is to the current stock price, the more expensive the option. Strikes far from the current price are cheaper but require a bigger move to pay off.
- Deep in the money: strike is far in your favor. Expensive, but behaves almost like the stock itself.
- At the money: strike roughly equals the current price. Balanced cost and sensitivity.
- Out of the money: strike is away from the current price. Cheap, but you need the stock to move to your side before expiration.
Picking a strike
Beginners usually start with strikes slightly out of the money, 1 to 3 percent away from the current price. That balances cost against the need for a real directional move. Far-OTM strikes are lottery tickets that usually expire worthless.