The strike price is one of the key factors in determining the value of an option.

If you are new to options trading or a seasoned veteran, it is important to understand the impact that a strike price has on your trading and profits.

David Jaffee of BestStockStrategy.com has taught more than 1,500 students how to trade options, and his teachings include helping students choose the right strike price.

Keep reading to learn more about options strike price.

## What is an options strike price?

The strike price of an option is the price at which you can buy or sell the underlying stock.

Both call and put options can be bought and sold at a specified strike price.

An option strike price may also be referred to as the exercise price because it is the set price that you can buy or sell at when exercising a derivatives contract.

The strike price of a call or put option is established when a contract is written, and it is one of the determining factors of the option price.

The strike price is also the price that determines whether an option is in-the-money, or out-of-the-money.

Strike prices for options are set at fixed dollar amounts and usually are available in $2.50, $5 or $10 increments.

Choosing a good strike price can help you become a profitable trader.

In fact, the strike price of an option is considered one of the most important factors in determining an option’s value.

The value of an option is determined by the difference between the stock price and the strike price, the duration of the options contract, the market volatility, the implied volatility of the underlying security, etc.

When buying a call option, if the underlying stock price is below the strike price, the option does not have intrinsic value.

When the underlying stock price is above the strike price, the option has intrinsic value (when long a call option).

However, as stated previously, the value of an option can change based on volatility and days to expiration (among other factors).

### Options Strike Price Example

Consider a situation where you're **long a put option **with a strike price of $50 that is about to expire.

If the underlying stock is currently trading at $45, the put option has a value of $5 of intrinsic premium.

However, if the value of the underlying stock is currently trading at $55, the put option has no intrinsic value.

## Strike Price vs. Stock Price

The stock price is the last transaction price for a share of the underlying asset. Basically, the stock price is the current market price of the stock.

The strike price of an option is the price at which a contract can be assigned by the option’s owner.

## How to Choose Strike Price for Call Options

Choosing the strike price and the time to expiration are important decisions when selecting an option.

The strike price can greatly impact the value of an option and affect your profit.

**In general, I believe that selling out-of-the-money options is the best trading strategy (although I also believe it's worthwhile to buy options during periods of market extremes).**

To earn a consistent profit by trading options it is important to mitigate your risk.

In my opinion, selling put options is the best and safest options trading strategy to earn a profit.

When choosing a strike price you must consider your risk tolerance and your preferred risk-reward payoff.

## Strike Price and Spot Price

Spot price refers to the current market price of an option.

The owner of an option has the right, but not the obligation, to exercise their option at the specified strike price.

## Is there a strike price formula?

There is not a magic strike price formula to calculate the perfect strike price.

Some options traders prefer to use Greeks as a tool to determine an optimal strike price.

Greeks can help measure how various factors will impact the price of an option. The mathematical calculations consider volatility, time to expiration, and a few other factors.

For example, Delta can help predict the probability of an option being in-the-money when it expires.

While Greeks can be helpful, they are not a guarantee for success.

There are also various probability and strike price calculators available online that do the math for you, but these are also not guarantees to earn a profit.

I do recommend using second order Greeks, such as Vomma, Charm, etc. Karl Domm from the Real P&L YouTube channel uses second order Greeks with a lot of success.

## Learn More About Options Strike Prices with David Jaffee

David Jaffee of BestStockStrategy.com can teach you the best strategy for trading options profitability.

Choosing the right strike price is a skill that comes with time and experience.

By limiting his watch list of stocks, David Jaffee is able to learn the ebbs and flows of each stock and determine the best strike prices.

Enroll in David Jaffee’s online options trading course today to improve your ability to choose the right strike price.

Frequently Asked Questions (FAQs)

What is an options strike price?

The strike price of an option is the price at which a put or call option can be exercised. It is also known as the exercise price. Picking the strike price is one of two key decisions (the other being time to expiration) an investor or trader must make when selecting a specific option.

What is the difference between spot price and strike price?

The strike price of an option tells you at what price you can buy or sell the underlying security if the option is exercised.

The spot price is the current market price of the underlying security.

The difference between the strike price and the spot price determines whether an option is in, or out, of the money and it also significantly affects the value of the option (or the current option price).

How to choose the right options strike price?

In general, I prefer to sell out of the money ("OTM") put options. You can sell a put option on a market leading stock that has a strong brand. In the worst case scenario, you can take ownership of the stock at the strike price; be careful though because taking ownership of stocks requires more buying power than simply selling a put.

When is a strike price in the money?

With a put option, when the strike price is above the current market price, then the put option is in the money.

With a call option, when the strike price is below the current market price, then the call option is in the money.

Exercise price vs strike price?

Every stock option has an exercise price, also called the strike price, which is the price at which a share can be bought. Exercise price and strike price are synonymous and can be used interchangeably.