Definition of 'Strike Price'
The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold.The difference between the underlying security's current market price and the option's strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.
Also known as the "exercise price."
Investopedia explains 'Strike Price'
Strike prices are one of the key determinants of the premium, which represents the market value of an options contract. Other determinants include the time until expiration, the volatility of the underlying security and prevailing interest rates. Strike prices are established when a contract is first written. Most strike prices are in increments of $2.50 and $5.Read more: http://www.investopedia.com/terms/s/strikeprice.asp#ixzz2CxGsJF5w
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 $50
| Strike Price | Moneyness | Call Option Premium | Intrinsic Value | Time Value |
| 35 | ITM | $15.50 | $15 | $0.50 |
| 40 | ITM | $11.25 | $10 | $1.25 |
| 45 | ITM | $7 | $5 | $2 |
| 50 | ATM | $4.50 | $0 | $4.50 |
| 55 | OTM | $2.50 | $0 | $2.50 |
| 60 | OTM | $1.50 | $0 | $1.50 |
| 65 | OTM | $0.75 | $0 | $0.75 |
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 $50
| Strike Price | Moneyness | Put Option Premium | Intrinsic Value | Time Value |
| 35 | OTM | $0.75 | $0 | $0.75 |
| 40 | OTM | $1.50 | $0 | $1.50 |
| 45 | OTM | $2.50 | $0 | $2.50 |
| 50 | ATM | $4.50 | $0 | $4.50 |
| 55 | ITM | $7 | $5 | $2 |
| 60 | ITM | $11.25 | $10 | $1.25 |
| 65 | ITM | $15.50 | $15 | $0.50 |
Strike Price Intervals
The strike price intervals vary depending on the market price and asset type of the underlying. For lower priced stocks (usually $25 or less), intervals are at 2.5 points. Higher priced stocks have strike price intervals of 5 point (or 10 points for very expensive stocks priced at $200 or more). Index options typically have strike price intervals of 5 or 10 points while futures options generally have strike intervals of around one or two points.