Chapter 6 | 2 min read
Strike Price and Moneyness
Introduction
When you open the list of options for Nifty or a stock, you see many strike prices. Choosing the right strike is one of the most important decisions in options trading. This lesson explains strike prices and the idea of moneyness: in the money, at the money and out of the money.
What is a Strike Price?
The strike price is the fixed price at which the option buyer can buy (call) or sell (put) the underlying. The exchange offers many strikes at fixed gaps. For example, Nifty strikes are available at intervals of 50 points, such as 23,900, 23,950, 24,000 and 24,050.
Moneyness of Call Options
Assume Nifty is at 24,000.
- In the money (ITM): strike below the current price, such as 23,800. It already has real value of 200 points.
- At the money (ATM): strike at or nearest to the current price, 24,000.
- Out of the money (OTM): strike above the current price, such as 24,200. It has no real value yet.
Moneyness of Put Options
For puts, it is the opposite. With Nifty at 24,000:
- ITM put: strike above the price, such as 24,200.
- ATM put: 24,000.
- OTM put: strike below the price, such as 23,800.
Quick Reference
| Call | Put | |
| ITM | Strike below price | Strike above price |
| ATM | Strike near price | Strike near price |
| OTM | Strike above price | Strike below price |
How Moneyness Affects Premium (Illustrative)
Nifty at 24,000, two weeks to expiry:
| Call strike | Type | Premium |
| 23,800 | ITM | Rs 280 |
| 24,000 | ATM | Rs 150 |
| 24,200 | OTM | Rs 65 |
| 24,500 | Deep OTM | Rs 15 |
ITM options cost more but move more with the price. OTM options are cheap but need a big move to become profitable, and many expire worthless.
Which Strike Should Beginners Choose?
- ATM or slightly ITM strikes give a good balance of cost and movement.
- Avoid buying very cheap deep OTM options hoping for a jackpot. They look attractive but most expire at zero.
Check Strikes on GoPocket
On the GoPocket app, open Nifty options for the nearest expiry. Find the ATM strike and compare the premiums of three ITM and three OTM strikes on both the call and put side.
Key Takeaways
- The strike price is the agreed buy or sell price.
- ITM, ATM and OTM describe where the strike is compared with the market price.
- Beginners should prefer ATM or slightly ITM options.
Disclaimer: Premiums are illustrative, not live prices.
