How strike prices work
- A call gains value at expiry when the underlying settles above its strike.
- A put gains value at expiry when the underlying settles below its strike.
- Exchanges list many strikes for each expiry. Near the current price, Nifty strikes are 50 points apart.
Moneyness
Where the strike sits against the current price is called moneyness.
| Call | Put | |
|---|---|---|
| In the money (ITM) | Strike below the spot price | Strike above the spot price |
| At the money (ATM) | Strike at or nearest the spot price | Strike at or nearest the spot price |
| Out of the money (OTM) | Strike above the spot price | Strike below the spot price |
An example
Example
With Nifty at 25,000, 12 days to expiry and implied volatility of 14%, model prices for calls are about ₹617.65 at the 24,500 strike, ₹280.50 at 25,000 and ₹92.10 at 25,500. The 24,500 call is ₹500 in the money, so ₹500 of its price is intrinsic value and the rest is time value. The 25,000 and 25,500 calls are made up only of time value.Formula
Intrinsic value of a call = max(0, spot − strike). Intrinsic value of a put = max(0, strike − spot). Time value = premium − intrinsic value.How traders choose strikes
- Option buyers often choose at-the-money or slightly out-of-the-money strikes: cheaper than in-the-money, more responsive than far out-of-the-money.
- Option sellers often choose out-of-the-money strikes by delta, for example around 0.15 to 0.20, or beyond strikes with large open interest.
- Spreads combine two or more strikes to define the maximum profit and loss.
The option chain shows price, open interest, IV and Greeks for every strike, so you can compare them before choosing.
Related terms
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Frequently asked questions
What is the best strike price to trade?
It depends on the strategy, the time to expiry and your view. There is no single best strike.
Can the strike price change?
No. A contract's strike is fixed. Exchanges add new strikes as the price moves.
Why do far out-of-the-money options cost so little?
The chance of them ending in the money is small, and they have no intrinsic value.
Trading involves substantial risk. Model prices on this page are examples, not quotes, and are not investment advice.