# The strike price of an option is, Strike Price Explained | The Options & Futures Guide

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Hit the right strike price for your strategy Here are a few ways to help you pick the strike price when trading options.

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If so, selecting the strike price is one of the most critical decisions to make. Picking your options strike price boils down to a couple of key decisions, such as: What price do you think the underlying stock will move to over a certain period of time and what price are you willing to pay or receive for the strike price of an option is or selling an options contract? To help answer these questions, consider options Greeks and a probability calculator.

A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call optionsthe strike price is where the security can be bought by the option holder; for put optionsthe strike price is the price at which the security can be sold. Strike price is also known as the exercise price. Key Takeaways Strike price is the price at which a derivative contract can be bought or sold exercised. Derivatives are financial products whose value is based derived on the underlying asset, usually another financial instrument.

The basics: What is the strike price? For call options, the strike price is the price at which an underlying stock can be bought. For put options, the strike price is the price at which shares can be sold.

Article Reviewed on July 30, Michael J Boyle Updated July 30, As you learn about trading optionsyou'll find that options traders use terms that are unique to options markets. You'll see these terms appear often and understanding them can have a significant effect on your chances for profitability on an options trade. Defining Options Before getting into options terminology, it's helpful to get some background on options themselves.

Fortunately, there are tools to help you make this critical decision. Greeks are mathematical calculations designed to measure the impact of various factorsâ€”such as volatility and the time to expiration, on the price behavior of options.

Delta can be used in several ways when constructing your options strategy. If the delta is 0.

A delta of 0. Intuitively, the greater the probability suggested by delta, the more expensive the option will be.

### Strike Price, Option Premium & Moneyness

Alternatively, the lower the probability suggested by Delta, the less expensive the option will be. To find the delta for an options contract, look at the options chain for a particular stock.

The benefit of the probability calculator is that it may help determine the likelihood of an underlying stock or index trading above, below, or between certain price targets on a specified date. Using this information, you may be able to enhance your profitability by selecting a strike price with the best potential to capitalize on the probability of the underlying stock or index reaching a certain price. You can access this tool by going to the options research page on Fidelity.

### Next steps to consider

The probability calculator enables you to adjust the stock price target, target date, and volatility parameters based on your own analysis to determine the probability of the underlying stock or index reaching a certain price.

The calculator also allows you to enter different strike prices to determine the probability of a successful option strategy. A few more tips Of course, there are additional ways to choose the strike price to buy or sell.

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- Moneyness[ edit ] Moneyness is the value of a financial contract if the contract settlement is financial.
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- The Bottom Line The strike price of an option is the price at which a put or call option can be exercised.
- Important Options Trading Terms

Among them: Time: Holding all else equal, a contract with a longer life implies a greater probability that the option will be in the money before expiration, but it will also cost more than a similar option with less time until expiration. Liquidity: You almost always want to look for options that are heavily traded and have small bid-ask spreads if you want to focus on reducing your trading costs.

Moneyness: In-the-money options are relatively more expensive than out-of-the-money options. Next steps to consider.

Open an account and place your trade Identify the market you want to trade There are a range of markets available to you when trading options, including forex, commodities and indices. Most of them are weekly or monthly.