Choosing the right strike price is one of the most important decisions in options trading. But how do you actually do it? This article shows how to choose the strike price for options, how to find the strike price that fits your goal, and how to determine the strike price that makes sense.
KEY TAKEAWAYS
To choose the strike price for options, you should consider that in-the-money options cost more but offer a higher chance of profit. Out-of-the-money options, instead, are cheaper but riskier.
The further the strike from current price, the lower the chance of finishing in the money - but the higher the potential reward or leverage.
General rule: find the strike price that matches reward vs probability trade-off
To choose the strike price for options, think of it as a trade-off between cost and probability. In-the-money options cost more but have a higher chance of profit. Out-of-the-money options are cheaper but riskier, with a lower chance of expiring in the money. Here's the general rule:
Far OTM strikes = lower cost, higher reward, low probability
Closer strikes = higher cost, lower reward, high probability
If you're wondering how to choose the strike price for call options or how to determine the strike price that fits your trade, start by asking: how confident am I in the move? Then adjust the premium accordingly.
And before we proceed, notice that the article is written from the perspective of someone buying options. If you’re an option seller, the logic is the mirror image: what’s risky for a buyer can be an opportunity for you. Do you want a guide for sellers? Let us know and we’ll write one.
How to choose the strike price for options based on your trading goal
How to choose the strike price for options depends on your trading goal. The right strike for a conservative trader won’t be the same as for someone chasing a big move. Start by matching the strike to the type of strategy you're using:
For income: Traders often sell out-of-the-money (OTM) calls or puts. These have lower premiums but higher chances of expiring worthless, which is what you want when selling options.
For speculation: You might buy at-the-money (ATM) or slightly out-of-the-money calls or puts. These are cheaper and can deliver high returns if the stock moves quickly in your direction.
For hedging: You typically buy in-the-money (ITM) options. They’re more expensive, but the deeper in-the-money you go, the more likely you are to have a good intrinsic value with these contracts. In other words, it is very unlikely that a deep ITM option will move OTM.
In the remaining part of the article, we will use AAPL as underlying stock (currently trading close to $220), and we will show you the difference in buying a call option that is OTM, ATM, or ITM by leveraging our options screener.
Example 1: OTM call - Choose the strike price for options with big potential but low probability
Let’s say you want big upside with minimal cost. In this case, you might choose the AAPL 285 call expiring in a month, which is far out-of-the-money. It trades between $0.01 and $0.04. This is the P&L of your strategy:
Notice a few things:
Cost: just a few cents
Breakeven: it will be strike price of the call you bought + premium paid (which is really far from today’s price). So, as you can see from the picture, $285 + $0.04 = $285.04
Profit only if AAPL rises significantly
The benefit? Leverage. If AAPL moves fast, this option could multiply in value. But you need that move to happen fast, and you’re likely to lose 100% if it doesn’t. This is a classic setup for aggressive traders betting on a sharp breakout. In fact, you may be lucky to spot a quick upside move in 1-2 weeks, realize you have a nice % profit, and close the position.
The market is pricing in less than a 1% chance for this option to reach the money by expiration (notice that delta is below 1, our screener scales this greek value between 0 to 100, so this can be approximated to a probability of the option being ITM below 1%). That’s why it only costs a few cents, and why it’s very likely to expire worthless. It’s also a good reason why many traders prefer to sell OTM options like this rather than buy them.
If you’re learning how to choose the strike price for options, this is the riskiest example. When trying to find the strike price with the biggest potential, many look to these lottery-ticket plays. But they’re not ideal if your goal is consistency.
Knowing how to determine the strike price also means knowing when not to go too far OTM. Cheap isn’t always better. And by the way, this is one of the reasons why we created the Analyzer feature on our website: based on a given scenario, you can play around with the risk level you prefer and see how to change strike prices accordingly.
Example 2: ATM call - Choose the strike price for options balancing cost and probability
Now consider a more balanced setup. You choose the 220 strike call, with the same expiration date. This at-the-money option trades for around $7.33. Here is your P&L:
Notice, again, the following aspects:
Cost: $733 per contract
Breakeven: $227.40
You make money if AAPL moves moderately. You no longer need a huge movement to profit, but your loss potential is significantly higher compared to the OTM example.
This is what many traders pick when they want exposure but don’t want to go too far out. It’s not as cheap as an OTM option, but not as expensive as an ITM call either.
When trying to choose the strike price for call options, at-the-money contracts often provide a good middle ground. You still get leverage, but your odds of success are higher than with deep OTM calls.
If you're wondering how to find the strike price that fits a reasonable bullish view, this is a good place to start. It’s a smart choice for those who want to participate in upside without betting on a moonshot.
This also shows why knowing how to choose the strike price for options depends heavily on how confident you are in the move.
Example 3: ITM call - Choose the strike price for options on a safer position with lower return
Now let’s move to a deep in-the-money option. The 155 call expiring September 12 trades for around $65. The P&L looks like this:
You can easily guess what we want to point out:
Cost: $6,553
Breakeven: about $221.20
High probability of finishing in the money, but you may lose a lot of money if you’re wrong.
This is the safest of the three examples. You're paying more upfront, but the trade behaves a lot like owning the stock. If AAPL moves up by $1, the option gains about $1 too. The downside is smaller relative return. You're risking more to make less (in % terms), but your odds of success are much higher.
When people ask how to choose the strike price for call options, they often overlook ITM trades because of the cost. But if your priority is probability over payoff, this is how to choose the strike price for options with a higher chance of success.
Gianluca Longinotti is an experienced trader, advisor, and financial analyst with over a decade of professional experience in the banking sector, trading, and investment services.
Leav Graves is the founder and CEO of Option Samurai and a licensed investment professional with over 19 years of trading experience, including working professionally through the 2008 financial crisis.
Gianluca LonginottiFinance Writer - Traders Education
Leav GravesCEO