The strike price (also called the exercise price) is the fixed price at which the holder of an option can buy (call) or sell (put) the underlying stock.
It’s set when the option contract is created and remains constant throughout the life of the option.
Suppose a stock is trading at $100 and you buy a call option with a strike price of $105.
The option becomes profitable (in-the-money) if the stock rises above $105 plus premium paid before expiration.
| Strike Price Relation | Option Status | Implication |
|---|---|---|
| Stock price > strike (call) | In-the-money | Call has intrinsic value |
| Stock price < strike (put) | In-the-money | Put has intrinsic value |
| Stock price ≈ strike | At-the-money | Highest time value, no intrinsic value |
| Stock price far from strike | Out-of-the-money | Option has no intrinsic value |