What is the strike price in options trading?

The strike price is the predetermined price at which the buyer of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset by exercising the option contract. There are three types of options based on strike price as follows:

**In the Money (ITM) Options:**For a call option, this means that the market price of the underlying asset is above the strike price. For a put option, this means the market price is below the strike price. For example, a call option with a strike price of ₹1000 is “in the money” when the market price of the underlying stock is at ₹1100.**Out of the Money (OTM) Options:**For a call option, this means the market price of the underlying asset is below the strike price. For a put option, this means the market price is above the strike price. For example, a call option with a strike price of ₹500 is “out of the money” when the market price of the underlying stock is ₹450.**At the Money (ATM) Options:**When the market price of the underlying asset is approximately equal to the strike price the option contract is said to be “At the Money”. For example, a call option with a strike price of ₹500 is “at the money” when the market price is ₹500.

In general, ITM options are the most expensive, followed by ATM options, and OTM options are the cheapest. The further the strike price is from the current market price, the cheaper the option will be.

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