Strike Price of Options Contracts

The Strike Price is the price at which the market must be through in order for the option to have value at expiration.

This is the price point where the option kicks in.

For example, if you Buy the 125 Call, you have the right to Buy the asset for 125. This is of no value if the asset is worth 123. It’s cheaper to buy the asset for the market value than it is to exercise your option. In fact, you are not able to exercise options unless they are “In The Money” (ITM). Being ITM means your option is beyond the point needed to be able to exercise.

Review the following bullet points until you have a solid understanding:

  • A Put is ITM (In the Money) when the underlying market price of the asset is Below the strike price
  • A Call is ITM when the underlying market is Above the strike price
  • When an option is not ITM, then it is Out of the Money (OTM)
  • A 125 Call is OTM if the market is $123
  • A 120 Put is OTM if the market is $123
  • A 125 Call is ITM if the market is $125.01 or higher
  • A 120 Put is ITM if the market is $119.99 or lower

You will see visual examples of these ideas soon which will help clarify what it means for options to be ITM or OTM.

For now, just remember that every Strike Price has both a Put and a Call. For every Strike Price, one option is ITM and the other is OTM. Review the bullet points above to understand this idea. If you are still not quite sure, keep moving forward because the visuals and videos may provide the clarity you need.