Lesson #1: What are Options? / Lesson #2: How options are priced / Lesson #3: Calls and Puts / Lesson #4: How options increase in value / Lesson #5: Times and Options / Lesson #6: Strike Price / Lesson #7: In, At and Out of the Money / Lesson #8: Option Risks / Lesson #9: Writing Options
Depending on how the Strike Price falls in relation to the actual value of the stock, it is said to be In, At or Out-of-the-money. This directly impacts the price of the option. |
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When you buy an option, the Strike Price is the predetermined price at which the stock can be bought or sold on expiration date.
For example, if you buy a call option for a stock with a Strike price of $10.00, this means that on expiration date, you have the right, but not the obligation, to buy the stock for $10.00. If at expiration date, the price of the stock has increased to $15.00. You could exercise your option and buy the stock for its $10.00 Strike Price and then turn around and sell it for $15.00.
When you buy an option, you will have to choose which option you want to purchase from a selection of options with different Strike Prices. This directly affects how much you will pay for the option. The Strike Price is set at preset intervals which is established by the option's market. For stocks worth $5.00 - $25.00, the Strike Price increases at $2.50 intervals.
This means that if a stock is worth $16.87 and you wanted to buy an option with a Strike Price as close as possible the actual value of the stock, you would have a choice of buying an option with a Strike Price of $15.00 or $17.50.
For stocks worth between $25.00 and $200.00, the Strike Price goes up by $5.00 intervals and for stocks worth over $200.00, the Strike Price increases at $10.00 intervals.
There are some exceptions to these rules. Some stocks valued over $25.00 have Strike Prices that increase in $2.50 intervals. The Strike Price for QQQQ increase at $1.00 intervals.
Not all stocks are available to trade Options.
For the most part, the Strike Price follow the guidelines noted in the chart below.
OPTION'S
STRIKE PRICE INTERVALS |
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Strike Price for Stock between $5.00 and $25.00
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$ 5.00 |
$ 7.50 |
$ 10.00 |
$ 12.50 |
$ 15.00 |
$ 17.50 |
$ 20.00 |
$ 22.50 |
$ 25.00 |
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The Strike Prices for stocks worth between $25.00 and $200.00 |
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$ 25.00 |
$ 30.00 |
$ 35.00 |
$ 40.00 |
$ 45.00 |
$ 50.00 |
$ 55.00 |
$ 60.00 |
$ 65.00 |
$ 70.00 |
$ 75.00 |
$ 80.00 |
$ 85.00 |
$ 90.00 |
$ 95.00 |
$ 100.00 |
$ 105.00 |
$ 110.00 |
$ 115.00 |
$ 120.00 |
$ 125.00 |
$ 130.00 |
$ 135.00 |
$ 140.00 |
$ 145.00 |
$ 150.00 |
$ 155.00 |
$ 160.00 |
$ 165.00 |
$ 170.00 |
$ 175.00 |
$ 180.00 |
$ 185.00 |
$ 190.00 |
$ 195.00 |
$ 200.00 |
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The
Strike Price for stocks worth $200 and over
|
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$ 200.00 |
$ 210.00 |
$ 220.00 |
$ 230.00 |
etc… |