Strike price definition
Strike price
The strike price is the price an options contract or other derivative must reach in order to be exercised. Holders of the options or derivatives contract may exercise the strike price until the expiration date. Both the strike price and expiration date are set at the time the options or derivative contract is purchased. For call options the strike price is the price the underlying security may be bought at, and for put options, the strike price represents at what price the asset may be sold.
In the money vs out of the money
You may see the strike price listed as in the money (ITM) if it is below the underlying security’s price, and out of the money (OTM) if it is above the underlying security’s price. ITM strike prices are less risky than OTM but will generally cost more to purchase. OTM contracts generally have a better rate of return compared to ITM contracts.