Strike Price
The strike price (also called the exercise price) is the fixed price at which the holder of an option contract can buy (call) or sell (put) 100 shares of the underlying stock.
The strike price is the contractual anchor of every options trade. When an options market maker lists contracts on a stock, the CBOE and other U.S. exchanges publish a ladder of available strikes at standardized intervals — often $1, $2.50, or $5 apart depending on the stock's price level and liquidity. You choose the strike that aligns with your market outlook and risk tolerance at the time of purchase.
For call options, the relationship between the current stock price and the strike price determines profitability at expiration. If shares trade at $100 and you hold a call with a $95 strike, your contract is 'in the money' — you could exercise and immediately profit $5 per share (less the premium). A $105 strike call, by contrast, requires the stock to climb above $105 before intrinsic value appears.
For put options, the logic reverses. A $105 put on a $100 stock is in the money because you could sell at $105 — $5 above market. A $95 put would need the stock to fall below $95 to have intrinsic value.
Strike selection is one of the most consequential decisions in options trading. Lower-strike calls on rising stocks cost less premium but require a bigger move to pay off. Higher-strike calls are cheaper still but even further out of the money. Traders weigh the delta (probability of expiring in the money), the premium cost, and the desired risk/reward ratio when choosing strikes.
During corporate events such as stock splits, mergers, or special dividends, the Options Clearing Corporation (OCC) adjusts strike prices on existing contracts to maintain economic equivalence. For example, after a 2-for-1 split, a $100 strike becomes two contracts with a $50 strike, and the share count per contract doubles to 200. Understanding these adjustments prevents surprises when holding options through corporate actions.