In the options market, a strike price (or strike price in the Australian options market) refers to a fixed price at which options will be bought or sold.

Basically, when someone buys a call option, they have the right to exercise that option to buy 100 shares of stock at the exercise price of that call option. On the other hand, the seller of the exercised option will be obliged to deliver 100 shares at that price.

This is simply a right to do so. It does not mean if exercise is a thing; the option owner will make a profit.

The option strike is usually expressed as follows:

– If the share price is higher than $100, the exercise price is in intervals of 10, that is: $100, $110, $120… etc.

– If the share price ranges between $25 and $100, it is in intervals of 5, that is, $25, $30…, $50, $55, $60…, $90, $95.

– If the share price is less than $25, it is in the 2.5 intervals, that is, $17.7, $20 and $22.5.

The strike also reflects the liquidity of the option itself. This is why you will see a number of actions that do not follow the formula above. For example, at the time of writing, Microsoft (MSFT) trading at $28 has a $1 strike price increment. Also Procter & Gamble (PG) at the time of writing, trading at $60 It has a strike price of $1.

Sometimes an unexpected event like a 2:1 or 3:2 stock split can result in an odd number like $2.5 or $3. It’s because when the underlying stock splits, the options also split.

If you own a $55 call option contract and the stock splits from $50 to $25, you will end up owning 2 $27.5 call option contracts. The value will not change, but your contract size and strike price will.

However, once you start trading and gain some experience, you will know that strike prices don’t matter that much. What matters is your risk-reward analysis, managing your emotions, and continuing to learn and hone your skills.