Success in investing doesn't come from buying good things, but from buying things well.
What Is Strike Price?
The strike price is the price at which you can buy (call) or sell (put) the underlying stock. It's locked in when you buy the option.
Example: Tesla Call Option
Tesla is trading at: $250
You buy a call with strike: $260
This means: You have the right to buy Tesla at $260, no matter how high it goes.
If Tesla hits $300, you can still buy at $260. That's $40 profit per share!
ITM, ATM, OTM Explained
Options are classified by how their strike price relates to the current stock price:
In The Money
Has intrinsic value right now.
- • Call: Strike BELOW stock price (can buy cheap, sell at market)
- • Put: Strike ABOVE stock price (can sell high, buy at market)
- • Most expensive, highest probability of profit
At The Money
Strike equals (or very close to) stock price.
- • Most time value (maximum uncertainty)
- • Roughly 50/50 chance of profit
- • Popular for directional bets
No intrinsic value. Only time value.
- • Call: Strike ABOVE stock price (stock needs to rise)
- • Put: Strike BELOW stock price (stock needs to fall)
- • Cheapest, but lowest probability of profit
Visual Example: Apple at $175
| Strike | For Calls | For Puts | Relative Cost |
|---|---|---|---|
| $160 | ITM (+$15) | OTM | $$$$ |
| $170 | ITM (+$5) | OTM | $$$ |
| $175 | ATM | ATM | $$ |
| $180 | OTM | ITM (+$5) | $$ |
| $190 | OTM | ITM (+$15) | $ |
Apple trading at $175. ITM calls are expensive but safer. OTM calls are cheap lottery tickets.
What Is Expiration Date?
The expiration date is your deadline. After this date, your option either becomes worthless (OTM) or gets exercised (ITM). No extensions, no exceptions.
| Expiration Type | Time Frame | Best For |
|---|---|---|
| Weekly (0DTE-7DTE) | 0-7 days | Quick trades, earnings plays, day traders |
| Monthly | 30-45 days | Swing trades, most beginners |
| LEAPS | 6-24 months | Long-term bullish/bearish bets, less time decay |
The Trade-Off
Longer Expiration
- ✓ More time for stock to move
- ✓ Slower time decay
- ✗ Costs more (higher premium)
- ✗ More capital tied up
Shorter Expiration
- ✓ Cheaper premium
- ✓ Higher % returns if right
- ✗ Fast time decay
- ✗ Less room for error
Beginner tip: Start with 30-60 day expirations. They give you enough time without excessive cost. Avoid weekly options until you're experienced - they decay extremely fast.