Definition
The strike price, also called the exercise price, is the fixed price at which an option holder may buy the underlying — for a call — or sell it — for a put. It is set when the contract is created and does not change over the option's life.
The relationship between the strike and the current market price defines an option's moneyness: in the money, at the money, or out of the money. That relationship drives both the option's value and the probability it ends up worth exercising.
Why it matters
How it works
When a trader opens an option position, they choose a strike from a chain of available levels. A call is in the money when the underlying is above the strike; a put is in the money when the underlying is below it. Strikes far out of the money are cheap but unlikely to pay off; strikes deep in the money cost more but carry intrinsic value and behave more like the stock. Spreads and other multi-leg strategies combine two or more strikes to shape a precise risk-reward profile. Picking the strike is therefore where a trader expresses both their price forecast and their appetite for cost versus probability.