FAQs on Strike Price for New Options Traders
Introduction
Getting started with options trading can be confusing—especially when it comes to understanding the strike price. To help you get up to speed, we’ve compiled a list of the most frequently asked questions about strike prices from new traders.
What is a strike price in options trading?
The strike price is the agreed price at which the option contract allows you to buy (call) or sell (put) the underlying asset.
How is the strike price different from the stock price?
- The stock price is the current market value of the asset.
- The strike price is fixed in the contract and used to determine profit or loss.
How do I know which strike price to choose?
It depends on your strategy and market outlook:
- In-the-money (ITM): Safer, higher premium
- At-the-money (ATM): Balanced cost and probability
- Out-of-the-money (OTM): Cheaper, higher risk/reward
Does the strike price change after I buy the option?
No. Once the option is purchased, the strike price is fixed for the life of the contract.
What happens if the option never reaches the strike price?
If the option remains out-of-the-money, it will expire worthless and the buyer loses the premium paid.
Can I sell the option before it reaches the strike price?
Yes. Options can be sold at any time before expiration. You may still profit from time value or volatility changes even if it hasn’t hit the strike.
What’s the best strike price for beginners?
- Use ATM or slightly ITM for a safer start.
- Avoid deep OTM options—they’re cheaper but riskier.
Does the strike price affect how much I pay for the option?
Yes.
- ITM strike prices = higher premium
- OTM strike prices = lower premium
- The strike price is a key factor in premium calculation
How do I calculate the breakeven point?
- Call option: Strike Price + Premium
- Put option: Strike Price – Premium
You must reach this level to start making a profit.
Can I change the strike price after buying the option?
No. You can’t change the strike price, but you can close your position and open a new trade with a different strike.
Is the strike price the same on every broker platform?
Yes. Strike prices are standardized by the exchange, though some brokers may show more or fewer available strikes.
Conclusion
Strike prices are at the core of every options trade. Understanding how to choose, calculate, and evaluate them will help you become a more confident trader. Use this FAQ as a reference whenever you’re unsure about strike price decisions.
FAQs (Quick Recap)
| Question | Quick Answer |
|---|---|
| What is a strike price? | Fixed price to buy/sell in the option |
| Can I sell before it hits the strike? | Yes, anytime before expiration |
| How do I choose the right strike? | Use ITM, ATM, or OTM based on your outlook |
| Can the strike price change? | No, it’s fixed once you open the trade |
| What if my option never reaches the strike? | It may expire worthless |
