Strike Price

The fixed price at which an option contract can be exercised — the price the call buyer can pay for shares, or the price the put buyer can sell shares, regardless of the current market price.

The strike price is the contractual price written into the option. A call with a $100 strike gives the holder the right to buy at $100; a put with a $90 strike gives the holder the right to sell at $90. The relationship between the strike and the current stock price determines whether an option is "in the money" (exercisable for a gain), "at the money" (strike equals current price), or "out of the money" (exercising would produce a loss relative to market price).

For call options: a strike below the current stock price is in the money; a strike above is out of the money. For put options, it's reversed: a strike above the current price is in the money; below is out of the money. In-the-money options carry intrinsic value — real value based on the current price difference. Out-of-the-money options carry only time value — the probability-weighted chance that the stock will move favorably before expiration.

Strike selection is the most consequential decision in options trading. Buying far out-of-the-money calls is cheap but requires a large move to become profitable. Selling a covered call at a strike close to the current price generates more premium but creates a lower effective sale price. The right strike depends on your objective: income, hedging, or speculation — and those require completely different frameworks.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.