Strike Price
Options
What it means
The fixed price at which the holder of an option can buy (for call options) or sell (for put options) the underlying asset. Options are available at multiple strike prices, typically spaced $1 to $5 apart for liquid underlyings.
Example
SPY is trading at $500. Available call option strike prices include $495, $500, $505, and $510. A $500 strike call means you have the right to buy SPY at $500 even if it rises to $600 before expiration.
Mistake beginners make
Beginners buy far out-of-the-money (very low strike calls or very high strike put) options because they are cheap, but the odds of these options expiring in the money are extremely low. At-the-money or slightly in-the-money options have higher probabilities of paying off.
Related terms
- Call Option — A contract that gives you the right (but not the obligation) to buy 100 shares of an under…
- Put Option — A contract that gives you the right (but not the obligation) to sell 100 shares of an unde…
- Option Premium — The price you pay per share to buy an option contract. The total cost of the option is the…