Strike price
TradingDefinition
The fixed price at which an option contract can be exercised. For a call, it's the price you can buy the underlying at; for a put, the price you can sell at. Strikes near the current price are "at the money" (ATM); above are "out of the money" (OTM); below are "in the money" (ITM) for calls (reverse for puts).
Choice of strike controls the tradeoff between premium cost, breakeven, and probability of profit. ATM = expensive, ~50% odds. OTM = cheap, low probability, big payoff if it works.
Choice of strike controls the tradeoff between premium cost, breakeven, and probability of profit. ATM = expensive, ~50% odds. OTM = cheap, low probability, big payoff if it works.