Glossary
What is Strike Price? Meaning, Example & Why It Matters
The fixed price at which an option holder can buy (call) or sell (put) the underlying asset.
The strike price is the price written into an options contract. For a call option, it is the price at which the buyer can buy the underlying; for a put, it is the price at which the buyer can sell. Exchanges list many strike prices for each underlying and expiry, spaced at set intervals above and below the current market price.
Why Strike Price matters to you
Where the strike sits relative to the market price determines whether an option is in the money, at the money or out of the money. In-the-money options have intrinsic value and cost more. Out-of-the-money options are cheaper because they only have time value, and they need a bigger price move to become profitable.
Choosing a strike is a trade-off between cost and probability. A cheap, far out-of-the-money option may look attractive, but the chance of it paying off is low. A deep in-the-money option behaves more like the underlying itself but ties up more premium. Liquidity also varies by strike, which affects slippage.
Practical tip: check the bid-ask spread and open interest at a strike before trading. Thinly traded strikes can have wide spreads, so the price you pay to enter and exit may be noticeably worse than the last traded price suggests.
Example: Illustrative only: if an index is at 20,000 and you buy a 20,200 call, the option is out of the money. At expiry it only has value if the index is above 20,200, and you profit only if it rises enough to also cover the premium and charges.
See it in rupees: every charge and tax on a real trade, at every broker. Open the brokerage calculator
Related terms
- GlossaryOptions
A contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price before expiry.
- GlossaryOption Premium
The price an option buyer pays to the seller for the rights the option contract provides.
- GlossaryOption Chain
A table showing all available call and put options for an underlying, with prices, volume and open interest by strike.
- GlossaryExpiry
The date on which a futures or options contract ends and is settled according to exchange rules.
Frequently asked questions
What does in the money mean?
A call is in the money when the market price is above the strike, and a put is in the money when the market price is below the strike.
Who sets the strike prices?
The exchange decides which strike prices are available for each underlying and expiry, based on its rules.
Is a closer strike always better?
Not always. Closer strikes cost more but have a higher chance of finishing in the money. The right choice depends on your view, budget and risk tolerance.