12 Jan, 2026
5 mins read
When trading in options, one of the most critical terms you will encounter is the “strike price.” This is not just a figure in a contract - it plays a major role in determining your strategy’s success. A well-chosen strike price can increase your chances of earning a profit or reduce potential losses.
In this blog, we’ll explore what a strike price means, its significance in trading, and how to choose one that fits your objectives.
The strike price refers to the predetermined price at which the buyer of an options contract can buy (for a call option) or sell (for a put option) the underlying asset. This price is fixed at the time the contract is created and does not fluctuate with the market.
For example, if you purchase a call option with a strike price of ₹100, you gain the right (but not the obligation) to purchase the asset at ₹100, even if the market price rises.
This predetermined price serves as a benchmark to assess whether exercising the option will be profitable.
Options are classified into different categories based on the relationship between the strike price and the current market price of the underlying asset. This relationship is referred to as “moneyness.”
Here, the strike price is nearly equal to the current market price of the asset.
Example: If a stock is trading at ₹200 and the option’s strike price is also ₹200, it is considered ATM.
These options usually have the highest time value, but no intrinsic value.
This indicates that the option has intrinsic value.
For call options: The strike price is lower than the current market price.
For put options: The strike price is higher than the current market price.
ITM options are typically more expensive due to their intrinsic value, but they carry less risk.
These options currently have no intrinsic value.
For call options: The strike price is higher than the current market price.
For put options: The strike price is lower than the current market price.
OTM options are less expensive but also riskier as they rely entirely on market movement to become profitable.
Understanding these types is essential when choosing an appropriate strike price for your strategy.
It’s important to distinguish between strike price and market price, as both influence the value of an option but represent different things.
Strike Price: Fixed in the options contract and used to determine potential profitability.
Market Price: Continuously changing price at which the underlying asset trades in the market.
The difference between these two values helps determine whether an option has intrinsic value and how much profit (if any) it could yield at expiry.
The strike price is one of the most decisive elements in an options contract. Here’s why it is crucial:
Defines Profitability Threshold: Whether an option finishes in profit largely depends on how the market price compares to the strike.
Determines Premium Cost: Options closer to being ITM tend to have higher premiums.
Affects Risk and Reward: The strike price helps define how aggressive or conservative your position is.
Shapes Strategy: In strategies like spreads or hedges, selecting the right strike is central to how the trade performs.
Several practical considerations go into selecting the most appropriate strike price:
A bullish trader expecting a strong move might opt for an OTM call.
A bearish outlook could justify selecting an ITM put.
In a highly volatile environment, options pricing and strike selection require extra caution.
Higher volatility may support choosing safer (ITM) strikes to manage risk.
The more time remaining, the more chance an OTM option has to become profitable.
Near expiry, ITM and ATM options are typically favoured.
Traders with limited budgets may prefer cheaper OTM options.
However, ITM strikes, while more expensive, often have a higher probability of payoff.
Multi-leg strategies like iron condors, straddles, or bull call spreads require precise strike planning.
Your strike choice affects potential returns, maximum loss, and break-even levels.
Let’s consider this example:
Stock: Reliance
Current Price: ₹2,500
You buy a call option with a strike price of ₹2,400
Premium Paid: ₹120
If the stock is at ₹2,550: Intrinsic value = ₹2,550 - ₹2,400 = ₹150
Profit = Intrinsic value – Premium = ₹150 – ₹120 = ₹30 per share
If the stock is below ₹2,400 at expiry, the option expires worthless, and you lose the ₹120 premium.
This example shows how strike price selection impacts your trade outcome directly.
The strike price is more than a number - it’s a defining factor in the success of your options trade. It determines how much premium you pay, how likely you are to make a profit, and how much you could lose. Learning to choose the right strike price based on your market view, budget, and risk profile is key to effective options trading.
Rather than guessing or going with the cheapest option, take the time to analyse your goals, market trends, and trading plan before deciding. The right strike price can significantly increase the chances of a favourable outcome.
It is the fixed price at which you have the right to buy or sell the asset through an options contract.
These are categories based on how the strike price compares to the current market price: ATM means both prices are similar, ITM is favourable, and OTM is unfavourable.
No. Once an options contract is created, the strike price remains fixed. Only the market price and the premium may change.
Calculate your Net P&L after deducting all the charges like Tax, Brokerage, etc.
Find your required margin.
Calculate the average price you paid for a stock and determine your total cost.
Estimate your investment growth. Calculate potential returns on one-time investments.
Forecast your investment returns. Understand potential growth with regular contributions.
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