The fixed price at which an option holder can buy (call) or sell (put) the underlying.
The strike is the reference that determines whether an option is in-the-money, at-the-money, or out-of-the-money. Strikes are listed at fixed intervals ($0.50, $1, $2.50, $5) depending on the stock's price.
Choosing a strike is choosing a probability. Far out-of-the-money strikes are cheap because they rarely pay off; deep in-the-money strikes behave almost like stock.
Example: with a stock at $100, a $90 call is $10 in the money, a $100 call is at the money, and a $110 call is $10 out of the money.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.Delta across the range of prices. Delta says how much a call's price moves for a one-point move in the stock. Far below the strike it is near 0 and the option barely reacts; at the strike it is about 0.50; far above it approaches 1 and tracks the stock.
Educational only, not advice. Spotted an error? Post in Site Feedback.