What Is a Strike Price? | How Do Options Work?

The strike price (also called the exercise price) is the fixed price at which an option holder can buy the underlying, for a call, or sell it, for a put. It is written into the contract and does not change as the stock moves, except when a corporate event such as a split forces a contract adjustment.

In short: the strike is the price the option locks in. A $50 call is the right to buy at $50; a $50 put is the right to sell at $50. Where the stock trades relative to the strike decides whether the option is in, at, or out of the money, and the strike plus or minus the premium gives the breakeven at expiration.

How strikes are listed

Exchanges list a grid of strikes for each expiration, usually clustered around the current stock price. A stock near $50 might have strikes at $45, $47.50, $50, $52.50, and $55, with narrower intervals on heavily traded names and wider ones on expensive or thinly traded stocks. New strikes are added as the price moves. How strike grids and expiration cycles fit together is covered in strike prices and expiration dates.

Strike and moneyness

Maple Widgets Inc. (a hypothetical company) trades at $50.

Strike	Call	Put
$45	In the money by $5	Out of the money
$50	At the money	At the money
$55	Out of the money	In the money by $5

The in-the-money amount is the option’s intrinsic value. Worked examples for both calls and puts are in in the money vs out of the money.

Strike and breakeven

The strike alone does not tell you where a trade starts making money. You have to add the premium.

Call: breakeven at expiration = strike + premium. A $55 call bought for $1.00 breaks even at $56.00.
Put: breakeven at expiration = strike - premium. A $45 put bought for $0.90 breaks even at $44.10.

For one contract, the $55 call costs $1.00 x 100 = $100. If Maple Widgets finishes at $58, the call is worth $3.00, or $300, for a $200 profit. At $55 or below, it expires worthless and the $100 is lost.

Choosing between strikes involves trade-offs

Lower call strikes cost more but need less movement to pay off; higher strikes cost less but usually expire worthless. The same logic runs in reverse for puts. There is no “best” strike, only a different mix of cost, probability, and payoff.

Contract adjustments

After a stock split, special dividend, or merger, the clearing house may adjust the strike, the number of shares per contract, or both, so the option’s economic value is preserved. An adjusted contract can look odd on a chain, for example a strike of $33.33 or a deliverable of 150 shares. Always check the contract details before trading an adjusted series.