Strike Price Explained: How to Choose the Right One: A Quick Guide

$175 call: costs $1,300, breaks even at $188. $195 call: costs $150, breaks even at $196.50. Same stock, same day — completely different risk profiles based on one number.

Apple is trading at $185. You are bullish and want to buy a call option expiring in 45 days. Three strikes are available:

$175 call (ITM — $10 in the money)
- Premium: $13.00 per share ($1,300 per contract)
- Intrinsic value: $10.00
- Time value: $3.00
- Delta: 0.78
- Breakeven at expiration: $188.00
- Probability of profit: ~65%

$185 call (ATM — at the money)
- Premium: $5.00 per share ($500 per contract)
- Intrinsic value: $0
- Time value: $5.00
- Delta: 0.50
- Breakeven at expiration: $190.00
- Probability of profit: ~45%

$195 call (OTM — $10 out of the money)
- Premium: $1.50 per share ($150 per contract)
- Intrinsic value: $0
- Time value: $1.50
- Delta: 0.22
- Breakeven at expiration: $196.50
- Probability of profit: ~20%

The $175 call costs 8.7× more than the $195 call — but its breakeven is only $3 above the current price versus $11.50. The strike price determines your breakeven, your cost, and your probability of profit. It is the most important decision after choosing the stock.

The diagram below shows how different strike prices relate to the current stock price and how that relationship determines moneyness.

The table below shows the value of each Apple call at expiration across three scenarios: Apple rallies to $200, stays flat at $185, or drops to $175. All figures are per contract (100 shares). Past performance does not indicate future results.

The pattern is clear: the ITM call ($175 strike) produces the largest dollar profit when Apple rallies (+$700) but the smallest percentage return (54%). The OTM call ($195 strike) produces the smallest dollar profit (+$200) but the highest percentage return (133%) — IF the stock moves far enough. In two of the three scenarios, the OTM call is a total loss.

The ATM call ($185 strike) sits in the middle on every metric. It is neither the cheapest nor the safest, but it offers a balance of cost and probability that many traders default to. No single strike is universally "correct."

The strike price (also called the exercise price) is the specific price at which the holder of an options contract can buy or sell the underlying stock. For a call option, it is the price you pay per share if you exercise. For a put option, it is the price you receive per share.

The strike price is fixed when the contract is created and never changes. It is listed on the options chain alongside the premium, volume, and open interest. The relationship between the strike and the current stock price creates moneyness — whether the option is in the money, at the money, or out of the money.

Exchanges set strike prices in standardized increments: $2.50 for stocks under $25, $5 for stocks between $25-$200, and $10 for stocks above $200. Popular high-volume stocks may have $1 increments near the current price.

New strikes are added automatically as the stock price moves. For a broader introduction, see What Is Options Trading?.

The strike price has a direct impact on every aspect of an options trade: cost, delta, probability, and breakeven.

For call options: Lower strikes are more expensive because they are deeper in the money. A $175 call on a $185 stock already has $10 of intrinsic value, so the premium must be at least $10 plus time value. Higher strikes are cheaper because they require the stock to move further to become profitable.

For put options: The pattern reverses. Higher put strikes are more expensive (deeper ITM). Lower put strikes are cheaper (more OTM).

Delta tells you the sensitivity. Deep ITM options have deltas near 1.0, moving nearly dollar-for-dollar with the stock. ATM options have deltas near 0.50. Far OTM options have deltas near 0, barely responding to stock moves. Delta also roughly approximates the probability of expiring ITM — a 0.78 delta suggests about a 78% chance.

Breakeven = strike + premium (for calls). The $175 call with a $13 premium breaks even at $188. The $195 call with a $1.50 premium breaks even at $196.50. The cheaper option has a much higher breakeven — that is the tradeoff.

Implied volatility also affects cost across all strikes. In high-IV environments, even OTM options can be expensive. See What Is Implied Volatility? for details.

Misconception 1: "The cheapest strike is the best deal." Out of the money options are cheap because they have a low probability of profit. A $0.40 option on Apple needs a $20+ move just to break even. Repeatedly buying cheap OTM options leads to a series of small losses that accumulate quickly.

Misconception 2: "ITM options are always safer." ITM options have a higher probability of retaining value, but they cost more in absolute dollars. A $13 ITM call on a $185 stock is $1,300 at risk. If Apple drops $15, you lose the full $1,300 — not "safer" in dollar terms.

Misconception 3: "Strike prices change as the stock moves." The strike is fixed for the life of the contract. What changes is the option's moneyness and its premium. Your $175 call will always be a $175 call — whether it is ITM, ATM, or OTM depends on where Apple trades.

Misconception 4: "Always pick the ATM strike." ATM options have the highest time value, meaning the most theta decay. For buyers, that is a disadvantage. A slightly ITM strike (higher delta, more responsive) or slightly OTM strike (lower cost) may be a better fit depending on the thesis.

Misconception 5: "Strike price is the most important factor." Strike matters, but so do expiration date, implied volatility, position size, and portfolio context. The What Is an Options Premium? guide shows how all these factors combine.

The strike determines your breakeven, cost, and probability. Before selecting a strike, calculate the breakeven (strike + premium for calls) and ask: is it realistic for the stock to reach that price in the time remaining?

Higher conviction supports ITM strikes. If you are confident in the direction and timing, ITM options give you more delta exposure with a closer breakeven. The cost is higher but the probability is better.

Lower conviction or smaller budgets favor ATM or slightly OTM. These strikes cost less and still participate in the move, but they require a larger stock move to profit.

Spread strategies change the calculus. In a vertical spread, you buy one strike and sell another. This offsets cost and reduces the importance of picking a single "perfect" strike. Spreads are a common way to manage the cost-probability tradeoff.

Check IV before choosing. In high-IV environments, all strikes are more expensive. Paying $5 for an ATM call in a 25% IV environment is very different from paying $5 for the same strike in a 50% IV environment — the stock needs to move more to justify the higher premium.

The strike price connects to nearly every other concept in options trading. Here are the recommended next steps:

- ITM vs OTM — A deeper dive into how moneyness affects pricing, strategy selection, and risk.
- What Is an Options Premium? — How intrinsic value and time value combine, and why moneyness is the primary driver of the split.
- What Is a Call Option? and What Is a Put Option? — How strike prices function in each contract type.
- How Options Are Priced — The Black-Scholes model and how the strike feeds into the formula.
- Strike Price and Expiration — Interactive examples showing how strike and expiration interact.
- What Is Implied Volatility? — How IV affects premiums across different strikes.

The key takeaway: strike price selection involves a tradeoff between cost, probability, and return potential. There is no single "correct" strike — the right choice depends on the trade setup, market conditions, and how much capital you are willing to allocate.