Definition:
The strike price is defined as the price at which the holder of an options can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.
The strike price is defined as the price at which the holder of an options can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.
Strike Price, Option
Premium & Moneyness
When selecting options to buy or sell, for
options expiring on the same month, the option's price (aka premium) and
moneyness depends on the option's strike price.
Relationship between Strike Price & Call Option Price
For call options, the higher the strike price,
the cheaper the option. The following table lists option premiums typical for
near term call options at various strike prices when the underlying stock is
trading at Rs50
Strike Price
|
Moneyness
|
Call Option Premium
|
Intrinsic Value
|
Time Value
|
35
|
ITM
|
Rs15.50
|
Rs15
|
Rs0.50
|
40
|
ITM
|
Rs11.25
|
Rs10
|
Rs1.25
|
45
|
ITM
|
Rs7
|
Rs5
|
Rs2
|
50
|
ATM
|
Rs4.50
|
Rs0
|
Rs4.50
|
55
|
OTM
|
Rs2.50
|
Rs0
|
Rs2.50
|
60
|
OTM
|
Rs1.50
|
Rs0
|
Rs1.50
|
65
|
OTM
|
Rs0.75
|
Rs0
|
Rs0.75
|
Relationship between Strike Price & Put
Option Price
Conversely, for put options, the higher the
strike price, the more expensive the option. The following table lists option
premiums typical for near term put options at various strike prices when the
underlying stock is trading at Rs50
Strike Price
|
Moneyness
|
Put Option Premium
|
Intrinsic Value
|
Time Value
|
35
|
OTM
|
Rs0.75
|
Rs0
|
Rs0.75
|
40
|
OTM
|
Rs1.50
|
Rs0
|
Rs1.50
|
45
|
OTM
|
Rs2.50
|
Rs0
|
Rs2.50
|
50
|
ATM
|
Rs4.50
|
Rs0
|
Rs4.50
|
55
|
ITM
|
Rs7
|
Rs5
|
Rs2
|
60
|
ITM
|
Rs11.25
|
Rs10
|
Rs1.25
|
65
|
ITM
|
Rs15.50
|
Rs15
|
Rs0.50
|
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Thanks for giving your valuable inputs, TRENDGURUS