Strike Price
The strike price is the fixed price, set when an option is created, at which its holder can buy (with a call) or sell (with a put) the underlying asset. Where the market price ends relative to the strike decides whether the option is worth anything at expiry.
In, at and out of the money
Options are described by where the current price sits relative to the strike. A call is in the money when the price is above the strike, and a put is in the money when the price is below it. At the money means the price is roughly at the strike. Out of the money is the opposite of in the money: exercising now would bring nothing.
The amount by which an option is in the money is its intrinsic value. Everything else in its price is time value, the extra buyers pay for the chance that things move further before expiry.
An example
Say BTC trades at 60,000 dollars. A call with a 55,000 strike is in the money with 5,000 dollars of intrinsic value. A call with a 70,000 strike is out of the money; it has only time value, and that time value disappears if BTC is still below 70,000 at expiry. A put with a 70,000 strike, by contrast, is in the money by 10,000.
How strikes affect price and risk
Deep in-the-money options cost more, behave much like the underlying asset and have a high chance of finishing with value. Far out-of-the-money options are cheap but usually expire worthless, because they need a large move in a limited time. Cheap is not the same as good value: a small premium is still lost entirely more often than not.
Exchanges list a set of standard strikes for each expiry, usually at round intervals around the current price. Some analysts watch where open interest clusters by strike, though such clusters do not reliably predict where the price will settle.
Common mistakes
Beginners often pick a strike only by how cheap the option is, or forget to add the premium when working out break-even. For a call, break-even is strike plus premium; for a put, strike minus premium.
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Frequently asked questions
Can the strike price change after I buy an option?
No. The strike is fixed for the life of the contract. Only the market price of the option changes.
What is the break-even of an option?
For a call, strike plus the premium paid; for a put, strike minus the premium. Fees move it slightly further.
Is it better to choose an in-the-money or out-of-the-money strike?
Neither is better in general. In-the-money options cost more but are more likely to keep value; out-of-the-money options are cheaper but usually expire worthless.
Related terms
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