What Happens When an Option Hits the Strike Price?
Introduction
If you’re trading options, one of the most important moments is when your option hits the strike price. But what exactly happens then? Does it automatically get exercised? Do you make a profit? In this post, we break down what it means for both call and put options when they reach the strike price.
What Is the Strike Price Again?
The strike price is the fixed price at which the option holder can buy (call) or sell (put) the underlying asset.
Scenario 1: Call Option Hits the Strike Price
If a call option hits the strike price, it means the stock price is equal to the strike.
- At this point, the option is at-the-money (ATM)
- It has no intrinsic value yet, only time value
- If the stock moves further above the strike, the option becomes in-the-money (ITM) and profitable for the holder
Scenario 2: Put Option Hits the Strike Price
If a put option hits the strike price, the stock has dropped to the price at which the holder can sell.
- The option is now at-the-money
- It needs to fall below the strike to become in-the-money
- Still has time value, but no intrinsic value until it moves further down
Does the Option Get Automatically Exercised?
Not immediately. Hitting the strike price alone doesn’t trigger exercise.
- Options are usually exercised only if they’re in-the-money at expiration
- Most retail traders close the position by selling the option back
- At expiration, brokers may auto-exercise ITM options by default
What Should You Do If Your Option Hits the Strike Price?
1. Monitor the Trade Closely
You’re at a decision point—watch for breakout or reversal moves.
2. Consider Closing the Position
If time is short and the option is only ATM, it may lose value fast.
3. Let It Ride (If Confident)
If there’s time and you believe the stock will move deeper ITM, hold for more potential profit.
Example: Call Option
- You bought a call option with a strike price of $100.
- The stock rises from $95 to $100 = At the Money
- Only if it goes to $101+ does the option start generating intrinsic value
Key Takeaways
- Reaching the strike price does not guarantee profit
- Intrinsic value starts only when the option is in-the-money
- Decisions around holding, closing, or exercising depend on time left and price movement
FAQs
Q1. Does an option automatically execute when it hits the strike price?
No, it only executes at expiration if it’s in-the-money, or if you manually exercise it.
Q2. Can I sell an option once it hits the strike price?
Yes, you can sell it any time before expiration, often for time value if ATM.
Q3. What if my option is exactly at the strike at expiration?
It may expire worthless or with minimal value—ATM options have no intrinsic value.
Q4. How do I know if I should hold or sell?
Assess the time remaining, your market outlook, and risk tolerance.
Q5. Will brokers notify me if an option hits the strike price?
No, but most platforms provide real-time alerts or allow you to set custom price triggers
