Strike Price

The strike price, also called the exercise price, is the fixed price written into an option contract. It is the price at which the buyer of a call option can buy the underlying, or the buyer of a put option can sell it. Once you pick a strike, it stays the same for the life of the contract, however much the market moves.

Call: the right to buy at the strike price. Put: the right to sell at the strike price.

Strike price vs spot price vs premium

These three numbers appear next to each other on every option chain and are easy to mix up:

When people say “the 22,800 call”, 22,800 is the strike price. The premium is what you pay for that call.

How strike prices are listed

You can’t choose any strike you like. The exchange lists a fixed set of strikes around the current price, at regular intervals:

• Nifty 50 options are listed at strikes 50 points apart for weekly and near-month contracts, such as 22,750, 22,800 and 22,850. Longer-dated contracts use wider gaps.
• Bank Nifty options are listed at strikes 100 points apart.
• Stock options use intervals that depend on the share price, so a higher-priced stock has wider gaps between strikes.

As the underlying moves, the exchange adds new strikes so there are always strikes on both sides of the current price. For stock options, NSE adjusts the strike price and lot size after corporate actions such as bonus issues and stock splits, so the value of an existing position isn’t changed by the action itself.

Strike price and moneyness

Where the strike sits relative to the spot price decides whether an option is in, at or out of the money. With the Nifty at 22,800:

A call is in the money when the spot price is above the strike. A put is in the money when the spot price is below the strike.

Strike price, intrinsic value and breakeven

The strike price is the anchor for the key calculations on any option:

• Intrinsic value of a call = spot price – strike price (or zero if negative)
• Intrinsic value of a put = strike price – spot price (or zero if negative)
• Breakeven of a call at expiry = strike price + premium paid
• Breakeven of a put at expiry = strike price – premium paid

At expiry, an option is worth only its intrinsic value. Index options are settled in cash. Stock options are physically settled, so an in-the-money stock option held to expiry means buying or selling the actual shares at the strike price.

Worked example: choosing a Nifty call strike

Say the Nifty is at 22,800 with seven days to expiry, and you expect it to rise. Three call strikes are on offer (illustrative premiums):

One lot of 65 costs ₹19,500 for the 22,600 call, ₹11,505 for the 22,800 call and ₹5,980 for the 23,000 call. Here’s the profit or loss per lot at expiry, depending on where the Nifty closes:

What the table shows:

• The in-the-money strike is the most forgiving. If the Nifty doesn’t move, it still keeps its intrinsic value and loses a third. On a modest rise to 23,000, it earns the most of the three.
• The out-of-the-money strike needs a big move. It loses everything unless the Nifty clears 23,092, but on a large rally it returns the most for each rupee spent.
• The at-the-money strike sits in between. It has the most time value, so it loses the whole premium if the Nifty doesn’t move. It needs a moderate rise to pay off.

How traders choose a strike

• Expecting a big, fast move: out-of-the-money strikes give the most leverage, but most of them expire worthless if the move doesn’t come.
• Expecting a moderate move: at-the-money strikes balance cost and sensitivity.
• Wanting a higher chance of profit: in-the-money strikes cost more but track the underlying more closely and carry less time value to lose.
• Selling options: writers usually pick out-of-the-money strikes beyond levels they expect to hold, often where open interest is concentrated, such as an OI wall.
• Checking liquidity: strikes near the current price usually have the most trading and the tightest bid-ask spreads. Far-away strikes can be hard to exit at a fair price.
• Watching the clock: close to expiry, time decay eats out-of-the-money premiums fastest.

To see every listed strike with live premiums and open interest, open Stolo’s Nifty option chain, or analyse strikes in depth with Stolo’s option chain analysis.