Core Concepts
Understanding Strike Price
Learn what a strike price is, how it defines the terms of an option contract, and why strike selection matters when buying or selling options.
What Is a Strike Price?
The strike price is the predetermined price at which the underlying shares can be bought or sold if an option is exercised.
Every call and put option has a strike price. It is one of the most important pieces of an option contract because it helps determine whether the option is in the money, at the money, or out of the money.
Simple definition
The strike price is the price written into the option contract for buying or selling the underlying shares if exercise or assignment occurs.
A Simple Example
Suppose a stock is currently trading for $50 per share. Looking at its option chain, you might see contracts with several different strike prices.
Lower Strike
$45
Near Stock Price
$50
Higher Strike
$55
These are different contracts even though they are based on the same underlying stock. Each strike creates a different set of rights, obligations, risks, and potential outcomes.
Strike Price for a Call Option
A call involves the right to buy shares at the strike price.
The buyer of a call has the right, but not the obligation, to buy the underlying shares at the strike price before or at expiration, depending on the contract.
The seller of that call takes on the corresponding obligation. For example, when you sell a covered call, you may be required to sell your shares at the strike price if the option is exercised and you are assigned.
Strike Price for a Put Option
A put involves the right to sell shares at the strike price.
The buyer of a put has the right, but not the obligation, to sell the underlying shares at the strike price before or at expiration, depending on the contract.
The seller of the put takes on the corresponding obligation. If you sell a cash-secured put and are assigned, you may be required to purchase 100 shares per contract at the strike price.
In the Money, At the Money, and Out of the Money
Traders often describe an option by comparing its strike price with the current price of the underlying.
In the Money
An option has intrinsic value. For a call, the stock price is above the strike. For a put, the stock price is below the strike.
At the Money
The strike price is at or very close to the current price of the underlying.
Out of the Money
The option has no intrinsic value. For a call, the stock price is below the strike. For a put, the stock price is above the strike.
Example: A Cash-Secured Put
Suppose an ETF is trading at $50 and you sell one cash-secured put with a $45 strike.
ETF Price
$50
Put Strike
$45
Cash Required
$4,500
By selling the $45 put, you are accepting the obligation to purchase 100 shares at $45 per share if assignment occurs.
Why the strike matters
The strike determines both the price at which you could be required to purchase the shares and the amount of cash needed to secure the put.
Example: A Covered Call
Now suppose you own 100 shares with the stock trading at $50 and sell a covered call with a $55 strike.
Stock Price
$50
Call Strike
$55
Difference
$5
If assignment occurs, you may be required to sell your 100 shares for $55 each, even if the market price has risen above $55.
Strike Selection Changes the Trade
Moving the strike farther from or closer to the current stock price changes several characteristics of the option.
Premium
Different strikes generally have different premiums. Moving farther out of the money often means collecting less premium when selling an option, all else being equal.
Delta
Different strikes have different Delta values. Strike selection and Delta are therefore closely connected.
Assignment Exposure
The location of your strike relative to the underlying price affects how close the option is to being in the money.
Capital or Share Obligation
For a cash-secured put, the strike determines the purchase obligation. For a covered call, it determines the price at which your shares may be sold.
Strike Price and Breakeven Are Not the Same
A common beginner mistake is assuming the strike price is automatically the breakeven price.
Cash-Secured Put Example
Strike price: $45.00
Premium collected: $0.50 per share
Breakeven at expiration: $44.50
This simplified breakeven calculation subtracts the premium received from the put strike and does not include fees or taxes.
Strike Price and the OptionEdge Approach
Strike selection is an important part of evaluating a cash-secured put. The OptionEdge approach does not choose a strike based only on the amount of premium available.
Delta Focus
0.15 or Lower
Delta is one factor used to evaluate how far a strike sits from the core OptionEdge criteria.
DTE Focus
4–14 DTE
Strike selection is considered together with expiration, premium, risk, and the underlying asset.
These are OptionEdge strategy guidelines, not guarantees of profit or protection from assignment or loss.
A Farther Strike Is Not Risk-Free
Selling an option farther out of the money can provide more distance between the current stock price and the strike, but it does not eliminate risk.
Stocks and ETFs can make large moves. Market conditions can change quickly, and an out-of-the-money option can move toward or into the money before expiration.
Common Strike Price Mistakes
Choosing a strike only because it offers the highest premium.
Selling a put at a strike where you would not actually want to own the shares.
Selling a covered call at a strike where you would not be comfortable selling your shares.
Assuming an out-of-the-money strike cannot be reached.
Ignoring Delta, DTE, volatility, and the underlying when choosing a strike.
Confusing the strike price with the trade's breakeven price.
Key Takeaways
The strike price is the contract's predetermined price for buying or selling the underlying shares.
Calls and puts use the strike price differently.
The strike helps determine whether an option is in, at, or out of the money.
Different strikes produce different premiums, Delta values, and trade characteristics.
A cash-secured put strike determines the price at which you may have to buy shares.
A covered-call strike determines the price at which you may have to sell your shares.
Strike selection should be considered together with premium, Delta, DTE, and risk.