The strike price is the predetermined price at which you can buy or sell the underlying stock when exercising an option. If you own a call with a $150 strike, you have the right to buy 100 shares at $150 regardless of where the stock actually trades. It's the most important number in any options contract.

How Strike Price Relates to Stock Price

The relationship between the strike price and the current stock price determines whether an option is in the money, at the money, or out of the money.

For calls:

  • In the money (ITM): Strike below stock price. A $140 call when the stock is at $150 has $10 of intrinsic value.
  • At the money (ATM): Strike equals (or is very close to) the stock price. A $150 call when the stock is at $150.
  • Out of the money (OTM): Strike above stock price. A $160 call when the stock is at $150 has no intrinsic value — only time value.

    • For puts, it's flipped:

  • ITM: Strike above stock price.
  • ATM: Strike equals stock price.
  • OTM: Strike below stock price.

    • Why Strike Price Matters So Much

    The strike price determines three critical things:

    1. Your break-even price. For a call, it's strike + premium paid. For a put, it's strike − premium paid. A $100 call bought for $5 breaks even at $105.

    2. The option's premium. The closer the strike is to the current stock price (or deeper ITM), the more expensive the option. An ATM call might cost $5.00 while an OTM call 10% above the stock costs $0.50.

    3. Your probability of profit. Deep ITM options have high deltas (70–90%) and a high probability of expiring with value. Far OTM options have low deltas (5–20%) and usually expire worthless.

    How to Choose the Right Strike Price

    There's no universally "best" strike — it depends on your strategy.

    Buying calls (bullish bet):

  • ATM or slightly ITM strikes give higher probability but cost more
  • OTM strikes are cheaper but need a bigger move to profit
  • Sweet spot for most traders: 1–2 strikes out of the money with 45+ days to expiration

    • Selling covered calls (income):

  • Choose a strike you'd be happy selling your shares at
  • 5–10% above current price is common
  • Higher strike = less premium but more room for stock appreciation

    • Selling cash-secured puts (income or stock acquisition):

  • Choose a strike at a price you'd happily buy the stock
  • 5–10% below current price is typical
  • Lower strike = less premium but better entry price if assigned

    • Strike Price Spacing

    Most liquid stocks have strikes every $1, $2.50, or $5. Index options like SPX might have strikes every $5 or $10. The more liquid the underlying, the tighter the strike spacing.

    | Stock Price | Typical Strike Spacing | Under $25$0.50 or $1 $25–$100$1 or $2.50 $100–$500$5 | Over $500 | $5 or $10 |

    Common Mistakes with Strike Selection

  • Always buying the cheapest (farthest OTM) option. These have the worst odds. You're paying for a lottery ticket.
  • Selling covered calls too close to the stock price. You'll collect more premium but get called away on any small rally.
  • Ignoring delta when selecting strikes. A quick shortcut: delta roughly equals probability of expiring ITM. A 0.30 delta option has about a 30% chance of finishing in the money.

    • OptionsPilot's covered call and put screeners rank strikes by premium yield and probability of profit, helping you find the optimal balance between income and risk for your specific situation.