Choosing the right strike price is one of the most consequential decisions you will make as an options trader. It determines how much a contract costs, how much leverage you get, and how likely the trade is to actually work out in your favor.
Most beginners focus almost entirely on picking the right stock and the right direction — up or down. Experienced options traders spend just as much time on the strike price, because two traders who agree completely on a stock’s direction can still get very different results depending on which contract they chose.
This guide covers everything you need to know to evaluate and select strike prices with confidence — from the basics of ITM, ATM, and OTM, to using delta as a probability tool, to how income traders and directional traders approach the decision differently.
Quick Answer
The strike price is the price at which an options contract gives you the right to buy or sell the underlying stock. When choosing a strike price, traders weigh four main factors:
- Distance from the current stock price — closer strikes cost more but have a higher probability of profit
- Delta — a quick way to estimate how likely an option is to finish in the money
- Premium cost — how much you are paying for the contract
- Time until expiration — longer timeframes give more room for the trade to work
Most beginners start with at-the-money or slightly out-of-the-money options. Most income traders use out-of-the-money strikes to maximize the chance of keeping the premium they collect.
What Is a Strike Price?
The strike price — sometimes called the exercise price — is the specific price written into an options contract at which you have the right to buy or sell 100 shares of the underlying stock.
For call options, the strike price is the price at which you can buy the stock. For put options, the strike price is the price at which you can sell the stock.
When you look at an options chain, you will see a column of strike prices running vertically, each with its own premium, delta, and other data. Every strike behaves differently, even on the same stock with the same expiration date.
Example — options chain for a $100 stock:
| Strike | Type | Option Price | Delta |
|---|---|---|---|
| $90 | Call | $11.20 | 0.82 |
| $95 | Call | $7.50 | 0.65 |
| $100 | Call | $4.00 | 0.50 |
| $105 | Call | $2.10 | 0.35 |
| $110 | Call | $0.90 | 0.20 |
The deeper in the money the strike is, the more expensive the contract — and the more it moves with the stock. The further out of the money, the cheaper and riskier it becomes.
The Three Strike Price Categories
Strike prices fall into three categories based on their relationship to the current stock price. Understanding these is the foundation of all strike selection.
In-the-Money (ITM)
A call option is in the money when the strike price is below the current stock price. A put is in the money when the strike is above the stock price.
Example:
- Stock price: $100
- Call strike: $90
The option already has $10 of intrinsic value built in. It costs more but behaves more like owning stock — it moves with the price more directly and has a higher probability of profit at expiration.
Who uses ITM strikes: Traders who want less risk and more certainty. ITM options cost more upfront but require a smaller move to be profitable, or no move at all if the stock stays above the strike.
At-the-Money (ATM)
A call option is at the money when the strike price is at or very near the current stock price.
Example:
- Stock price: $100
- Call strike: $100
ATM options are typically the most actively traded contracts on any given expiration date. They offer a balance between cost and leverage — not as expensive as ITM, not as risky as OTM.
Who uses ATM strikes: Traders expecting a moderate move who want balanced risk and reward. ATM options also have the highest time value, which makes them attractive for sellers collecting premium.
Out-of-the-Money (OTM)
A call option is out of the money when the strike price is above the current stock price. The stock has to move significantly for the option to gain real value.
Example:
- Stock price: $100
- Call strike: $115
OTM options are cheaper, which is why beginners are often drawn to them. But cheaper does not mean better. The stock has to make a larger move in less time for these contracts to pay off.
Who uses OTM strikes: Directional traders expecting a large move, income traders selling premium (where OTM is ideal), and hedgers buying downside protection.
Using Delta to Pick the Right Strike
Delta is one of the most useful tools for strike selection, and most beginners overlook it entirely.
Delta measures how much an option’s price moves for every $1 move in the underlying stock. But it also serves as a rough estimate of the probability that the option will finish in the money at expiration.
| Delta | Approximate Probability of Profit | Strike Type |
|---|---|---|
| 0.80 | ~80% | Deep ITM |
| 0.50 | ~50% | ATM |
| 0.30 | ~30% | OTM |
| 0.15 | ~15% | Far OTM |
How to use this practically:
If you are buying a call option and want a reasonable chance of profit, look for strikes with a delta between 0.40 and 0.60. These are near the money and give you a roughly even shot.
If you are selling a covered call and want the stock to stay below your strike (so you keep the premium), look for strikes with a delta of 0.20 to 0.30. This gives you roughly a 70–80% chance the option expires worthless and you keep the full premium.
💡 You can find delta on the options chain inside Webull and Tastytrade. Tastytrade in particular displays delta prominently and is designed to help traders evaluate probability at a glance.
How to Read the Options Chain to Evaluate Strikes
The options chain is where you actually make your strike selection. Here is what to look at:
1. The bid-ask spread A wide spread (e.g., $0.50 bid / $1.20 ask) means low liquidity. Avoid strikes with wide spreads — you will overpay to enter and underpay to exit. Stick to strikes where the bid and ask are close together.
2. Open interest This shows how many contracts are currently open at that strike. Higher open interest generally means better liquidity and tighter spreads. Look for strikes with at least several hundred contracts of open interest.
3. Volume Today’s trading volume at each strike. High volume means the strike is actively traded and prices are more accurate.
4. Implied volatility Implied volatility (IV) can vary across strikes. Strikes with elevated IV generate higher premiums if you are selling, but cost more if you are buying.
5. Delta As covered above — your quick probability estimate.
Getting comfortable reading the options chain takes practice. Start by filtering to a single expiration and scanning across the strikes before placing a trade.
How to Choose a Strike Price Based on Your Strategy
Different strategies call for completely different strike price decisions. Here is a breakdown by approach.
Directional Trades (Buying Calls or Puts)
If you expect a stock to move significantly in one direction, you are buying options for leverage.
Best approach: Choose a strike that is at the money or slightly out of the money — typically a delta between 0.35 and 0.55.
Why: These strikes offer enough leverage to amplify your gains if the stock moves, without requiring an unrealistic price move to become profitable.
Example:
- Stock: Apple (AAPL) trading at $190
- You expect it to reach $200 before expiration
- A $195 call (delta ~0.40) gives you solid upside participation at a reasonable cost
- A $210 call (delta ~0.15) is much cheaper but requires a $20+ move — far less likely in a short timeframe
Covered Call Income Strategy
This is one of the core strategies at Gainsumo — selling call options against shares you already own to generate regular premium income.
For covered calls, the goal is for the option to expire worthless so you keep the full premium. That means you generally want to choose a strike that the stock is unlikely to reach before expiration.
Best approach: Choose a strike that is 5–10% above the current stock price with a delta between 0.20 and 0.30.
Example:
- Stock: KULR Technology (KULR) trading at $3.50
- You sell a covered call with a $4.00 strike (roughly 14% OTM)
- Delta: ~0.22 — approximately 78% probability the option expires worthless
- You collect the premium. If KULR stays below $4.00, you keep it all.
The tradeoff: the further OTM you go, the safer you are — but the premium you collect gets smaller. Finding the right balance between premium collected and probability of keeping it is the art of covered call selection.
💡The goal is selecting strikes that generate consistent income while protecting accumulation. Tastytrade is the platform we recommend for executing covered calls — it’s built for this strategy.
Hedging (Buying Puts for Protection)
Investors who own stock and want downside protection often buy put options as insurance.
Best approach: Choose a put strike that is 5–10% below the current stock price — slightly OTM but close enough to provide meaningful protection.
Example:
- Stock: Microsoft (MSFT) at $420
- Buy a $390 put for protection
- If MSFT drops to $360, the put gains significant value and offsets some of the loss
The tradeoff is cost. The closer to the money your put is, the more it costs. Buying puts far OTM is cheap but provides protection only in severe drops.
How Strike Price Affects Premium Cost
Strike price is one of the biggest drivers of option premium. Here is a concrete example using a $100 stock with 30 days to expiration:
| Strike | Moneyness | Option Premium | Delta |
|---|---|---|---|
| $90 | Deep ITM | $11.20 | 0.82 |
| $95 | ITM | $7.50 | 0.65 |
| $100 | ATM | $4.00 | 0.50 |
| $105 | OTM | $2.10 | 0.35 |
| $110 | Far OTM | $0.90 | 0.20 |
| $115 | Deep OTM | $0.35 | 0.10 |
The premium drops sharply as strikes move further out of the money. This is why OTM options look attractive to beginners — they are cheap. But that low price reflects a low probability of success, not a bargain.
Common Strike Price Mistakes Beginners Make
Buying the cheapest option available
This is the single most common beginner mistake. A $0.35 option on a $100 stock needs the stock to move dramatically just to break even. The low price reflects the low odds — it is not a discount, it is a low-probability lottery ticket.
Ignoring time decay in relation to strike price
An OTM option loses value every single day as expiration approaches, even if the stock does not move at all. This is theta decay. The further OTM your strike is, the more time decay works against you because the stock has further to travel in less time.
For more on how this plays out at expiration, see our guide: What Happens When a Call Option Expires.
Chasing round-number strikes
Traders often cluster at round numbers — $100, $150, $200 — because they feel psychologically significant. But the $102 or $97 strike may actually offer better probability and a tighter spread. Do not ignore strikes just because they are not round numbers.
Ignoring liquidity
Strike prices with low open interest and volume have wide bid-ask spreads. You overpay to enter and get less when you exit. Always check open interest and volume before selecting a strike, not just the premium.
Selecting strikes too far from expiration or too close
Strike selection and expiration date work together. A strike that is reasonable with 60 days remaining becomes very risky with 5 days remaining. Always evaluate your strike choice in the context of the time remaining on the contract.
A Simple Strike Price Framework
If you want a starting point, here is a practical framework used by many experienced traders:
Buying calls or puts (directional): → Look for delta 0.40–0.55 (near the money) → Choose expiration 30–60 days out → Check open interest — look for 500+ contracts
Selling covered calls (income): → Look for delta 0.20–0.30 (OTM, roughly 70–80% probability of expiring worthless) → Choose expiration 21–45 days out (peak theta decay zone) → Target 1–3% of stock value in premium per month
Buying puts (hedging): → Look for delta 0.25–0.40 (slightly OTM) → Choose expiration 30–60 days out → Balance cost vs. protection level needed
Frequently Asked Questions
What strike price should a beginner start with?
Start with at-the-money strikes — where the strike is at or very close to the current stock price. These offer a roughly 50/50 chance of being profitable at expiration and are straightforward to understand. Avoid deep OTM options until you have a clear reason for selecting them.
Is a higher or lower strike price better for a call option?
It depends on your goal. A lower strike (deeper ITM) costs more but has a higher probability of profit. A higher strike (OTM) costs less but requires a larger move to pay off. Neither is universally better — it depends on your strategy and risk tolerance.
What is a good delta for buying a call option?
Most directional traders look for a delta between 0.40 and 0.60 for buying calls. This gives you meaningful upside participation without overpaying for deep ITM options or buying into the low-probability zone of deep OTM contracts.
What delta should I use for selling covered calls?
Most covered call sellers target a delta between 0.20 and 0.30. This means the option has roughly a 70–80% chance of expiring worthless, allowing you to keep the full premium. Higher delta strikes generate more premium but carry more risk of having your shares called away.
Does strike price change after I buy the option?
No. The strike price is locked in at the time of purchase. What changes is the option’s market value as the stock moves and time passes — but the strike itself is fixed for the life of the contract.
How do I find the right strike price on the options chain?
Open the options chain for your stock in your brokerage platform, filter to your target expiration date, then scan the strikes from ATM outward. Look at delta, open interest, and the bid-ask spread together. Webull displays all of this in a clean interface that is easy to navigate as a beginner.
Final Thoughts
Strike price selection is where options trading goes from guessing to strategy. The stock direction matters — but without the right strike, even a correct directional call can result in a loss.
The key is matching your strike choice to your goal. Directional traders want near-the-money strikes with reasonable probability. Income traders want out-of-the-money strikes that are unlikely to be reached. Hedgers want to balance protection cost against the level of downside they are insuring against.
As you get more comfortable reading the options chain, evaluating delta, and thinking in terms of probability rather than just price targets, strike selection will become one of your clearest competitive advantages.
Start with Webull to practice reading the options chain commission-free. When you are ready to trade covered calls and more advanced income strategies, Tastytrade gives you the tools and platform built specifically for that approach.
Gainsumo is a content and education platform. This article is for informational purposes only and does not constitute financial advice. Options trading involves substantial risk of loss.
