Learn with ETMarkets: What is Strike Price in options trading? All you need to know

In the first part of the option series, we learnt the basic concept of options and how they act as insurance for our underlying stocks.

The best part of options is, you can even buy/sell then without owning underlying. Read part 1 here.


Let’s understand normal insurance first.

Assume you have a car, and to protect your car you will take car insurance, but since the car as an asset only depreciates with time, it is natural for the insurance premium of car to also depreciate every year.

But stock prices keep fluctuating every single second in the live market hours. Premium of Call and Put will also fluctuate every second, and this creates trading opportunities. As a trader you can buy only CE/PE or both (if needed) and can sell it when the price of these premiums goes up.

But you can buy/sell options only of certain rounded-off prices and that is called ‘Strike’ price. This is done to ensure that we have enough liquidity between buyers and sellers.

Strike price is a set of prices at equal differences from each other, and an options trader can buy a call/put off any strike price.

You can get a list of strike prices for each stock on the NSE website: https://www.nseindia.com/get-quotes/derivatives?symbol=RELIANCE

The following link will give you option strikes of Reliance, similarly, you can get strikes of all derivatives. Here is a set of strikes for Reliance industries when its price is 2242.20


As you can see from the above image, Reliance has strikes 1800, 1820,1840….each strike has a uniform difference of 20 points.

As a trader, you can buy call or put off any strike.

If you expect Reliance Industries to go up, you can buy any strike call, similarly, if you expect reliance to go down, you can buy put.

When RIL goes up, almost all strike calls will go up and simultaneously all strike puts will go down, and when RIL goes down, almost all strike calls will go down and all strike puts will go up.

There are around 180 stocks in the derivative section which have their options. Each stock has its unique pricing.

At the time of writing the column – RIL is at 2242.20
Wipro price is at 359.55
Ashok Leyland's price is 136.60.

(Note: Stocks mentioned are for educational purposes and not buy or sell recommendations)

In RIL we have a difference of 20 points between each strike, but the same difference of 20 cannot be applied for small stocks like Wipro or AshokLey, and hence the exchange decides the difference between each strike.

For Wipro this is how the strike steps look like :


Here the strikes are 295,300,305…..385
The difference between each strike is only 5. Similarly, look at Ashok Leyland Here the difference between each strike is just 2.5.


So higher the stock price, the higher the difference between each strike. And this difference between each strike is called ‘Strike Step’.

Each strike will have a unique premium pricing and each strike will go up/down by a certain proportion to the underlying stock movement.

We will discuss the maths around each strike and try to understand which strike buying will give us more profits in the next lesson.

To summarize this lesson,
• We have learned, we can buy/sell options without even owning the underlying stocks
• We can trade in options only in a unique set of prices called strike prices,
• Higher the stock price, the higher the strike step
• Strike price have both call and put; when the stock goes up all strike calls go up and put goes down
• When a stock goes down, all strike call go down, and put goes up.

(The author is Co-founder Algofox.com)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)