In the money (ITM) means the option has intrinsic value. ITM calls have strike below underlying. ITM puts have strike above underlying. At the money (ATM) means the strike is at or very close to the current underlying price. Out of the money (OTM) means the option has no intrinsic value, only time value. OTM calls have strike above underlying. OTM puts have strike below underlying. The status changes as the underlying moves.

The options strike price. Pick by delta, not by dollar.

Q: What is the strike price of an option?

The strike price is the price at which the option holder can exercise the contract. For calls, the strike is the price the holder can buy the underlying at. For puts, the strike is the price the holder can sell at. The strike is fixed at contract creation and does not change during the life of the option. The relationship between the strike and the current underlying price determines whether the option is in the money, at the money, or out of the money.

Q: How do you pick the right strike price?

Match delta to strategy intent. For directional long calls or puts: 0.50 to 0.65 delta (at or slightly in the money). For credit spreads or cash secured puts: 0.20 to 0.30 delta (out of the money). For stock replacement LEAPS: 0.70 to 0.85 delta (deep in the money). The strike selected affects probability of profit, capital at risk, breakeven, and Greek exposure. Pick by delta and verify the strike matches your structural intent.

Q: What are strike intervals?

Strike intervals are the differences between consecutive available strikes. For most stocks under $200, intervals are typically $1 or $2.50 for ATM strikes and $5 for further out strikes. Above $200, $5 intervals are common with $10 further out. Index options (SPX, NDX) often have $5 intervals at near term ATM strikes. Some highly liquid names (SPY, QQQ) have $1 intervals throughout. The interval determines how precisely you can target a specific strike.

By Andrew Villagomez · chartmaster3000

The strike price is the price at which the option can be exercised. The relationship between the strike and the underlying determines whether the option is in the money, at the money, or out of the money. Most retail options traders pick strikes by dollar premium (what feels affordable). The honest approach picks strikes by delta to match the strategy intent.

What the strike price actually is

The strike (also called exercise price) is the price at which the option holder can buy (call) or sell (put) the underlying. The strike is fixed at contract creation. AAPL $200 call gives the holder the right to buy AAPL at $200 regardless of where AAPL is trading.

The strike is one of the four key parameters of an options contract. Underlying, strike, expiration, type (call or put). Together these determine the contract's behavior.

The moneyness categories

In the money (ITM).

The option has intrinsic value (the value if exercised immediately).

Call ITM: strike below underlying. AAPL at $200, $180 call is $20 ITM.

Put ITM: strike above underlying. AAPL at $200, $220 put is $20 ITM.

ITM options have higher delta (move closer to dollar for dollar with the underlying) and lower time value as a percentage of total premium.

At the money (ATM).

The strike is at or very close to the current underlying. AAPL at $200, the $200 call and $200 put are both ATM.

ATM options have delta around 0.50 (calls) or minus 0.50 (puts). The highest gamma. The highest time value as a percentage of premium. The most sensitive to underlying movement per dollar of premium.

Out of the money (OTM).

The option has no intrinsic value. Only time value.

Call OTM: strike above underlying. AAPL at $200, $220 call is OTM.

Put OTM: strike below underlying. AAPL at $200, $180 put is OTM.

OTM options have lower delta, lower premium, and lower probability of expiring in the money. The leverage is high but so is the failure rate.

How delta connects to strikes

Delta varies smoothly with strike. ATM options have delta around 0.50. Moving in the money increases delta toward 1.00. Moving out of the money decreases delta toward 0.

For typical options (30 to 45 DTE on liquid stocks).

Deep ITM (strike well below underlying for calls). Delta 0.85 to 0.95. Near dollar for dollar movement with underlying.

ITM by 5 to 10 percent. Delta 0.65 to 0.75. Strong directional exposure.

ATM. Delta 0.45 to 0.55. Balanced. Most volatile per dollar of premium.

OTM by 5 percent. Delta 0.25 to 0.35. Common strike for short premium strategies.

OTM by 10 percent. Delta 0.10 to 0.20. Lottery ticket territory.

Far OTM. Delta below 0.10. Cheapest but most likely to expire worthless.

Delta tells the story. Higher delta means more directional exposure and more probability of finishing in the money. Lower delta means cheaper premium with lower probability of profit. Pick the delta that matches the strategy intent.

The strike intervals

Strikes are not continuous. Available strikes are at fixed intervals.

Liquid large caps under $200.

Typically $1 intervals near the money. $2.50 intervals further out. $5 intervals deep in or out.

Liquid large caps $200 to $500.

$2.50 intervals near the money. $5 intervals further out. $10 intervals deep.

Liquid large caps above $500.

$5 intervals near the money. $10 intervals further out. $25 intervals deep.

Index options (SPX, NDX).

Often $5 intervals at near term ATM. SPX weekly options have $5 intervals on most expirations.

Highly liquid ETFs (SPY, QQQ, IWM).

$1 intervals throughout most of the chain. The most precise strike selection available.

The interval determines how precisely you can target a specific delta or specific dollar move. SPY's $1 intervals allow very precise strike selection. Higher priced stocks with wider intervals require accepting less precise targeting.

How to pick strikes for different strategies

Long calls or puts for directional bets.

Delta 0.50 to 0.65 (ATM or slightly ITM). Best balance of leverage, breakeven distance, and probability of profit. Avoid far OTM strikes for directional bets unless specifically running a lottery ticket strategy.

Short premium for income (covered calls, cash secured puts).

Delta 0.20 to 0.30 (OTM). High probability of expiring worthless. Strike at a price you would be happy to own (for CSP) or happy to sell at (for covered call).

Credit spreads.

Short strike at delta 0.20 to 0.30. Long strike further OTM for protection. Width between strikes determines the maximum loss.

Iron condor.

Both short strikes at delta around 0.15 to 0.20. Wide enough to contain expected moves. Long strikes further OTM on each side.

LEAPS for stock replacement.

Deep ITM. Delta 0.70 to 0.85. Move nearly dollar for dollar with underlying. Lower time premium per share of exposure.

Hedge puts.

Slightly OTM (strike below current price). Delta minus 0.20 to minus 0.30. Cost manageable. Protection on meaningful decline.

What kills strike pickers

Picking by dollar premium. The cheap call looks attractive but the strike is so far OTM that the probability of profit is low.

Picking by strike round numbers. $200 strike on a $195 stock might not be the right delta. Pick by delta first, accept the strike that produces it.

Ignoring liquidity. The illiquid strike with the perfect delta has wide spreads that eat the edge. Verify open interest and bid ask spread before committing.

Picking strikes without considering IV. Same delta strike at different IV levels has very different dollar premiums. The high IV environment makes everything more expensive.

Trading too many different strikes on the same underlying. Concentration on a few strikes that match the strategy produces cleaner results than scattering across many strikes.

The strike selection workflow

1. Decide the strategy. Directional bet, income, hedge, spread.

2. Decide the target delta based on the strategy. 0.50 to 0.65 for directional, 0.20 to 0.30 for short premium, etc.

3. Look at the options chain. Find the strike with delta closest to your target.

4. Verify liquidity. Open interest above 100 (1,000 better) and bid ask spread reasonable.

5. Verify the IV environment. High IV rank for short premium. Low IV rank for long premium.

6. Calculate the dollar at risk and the probability of profit. Confirm the math matches the strategy intent.

7. Place the order with a limit at the mid price.

Where the audit fits

The audit reads the actual strike selections and shows whether they match the strategy intent. For most retail options traders the pattern is picking strikes by dollar premium rather than delta. The plan locks the strike selection rule by strategy. Five to seven pages.

The next move

Strike rules on paper in 48 hours.

If your strike selection is inconsistent, the audit reads the record and locks the delta based rules for each strategy.

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Questions, answered.

What is the strike price of an option?

Price at which the option can be exercised. Fixed at creation. Relationship to underlying determines moneyness.

What is ITM ATM OTM?

In the money (intrinsic value). At the money (strike at current price). Out of the money (no intrinsic value).

How do you pick the right strike price?

Match delta to strategy. 0.50 to 0.65 for directional. 0.20 to 0.30 for short premium. 0.70 to 0.85 for stock replacement.

What are strike intervals?

$1 to $5 typically. Liquid ETFs (SPY, QQQ) often $1. Higher priced stocks $5 to $10.

— Andrew Villagomez (chartmaster3000)

ZenEdge is a brand under Gant Villagomez Capital. Andrew Villagomez is not a registered investment advisor, broker dealer, financial planner, or fiduciary. Nothing on this page constitutes investment advice or a recommendation to buy, sell, or hold any security. You are solely responsible for your own trading decisions, position sizing, risk management, and outcomes. Trading involves risk of loss, including total loss of capital.