Strike Price in Options

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Strike price in options
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Introduction

• In the derivative market strike price is a common
  terminology and the meaning of strike price is
  known to all the investors. T
• he strike price is the future set price at which
  the derivative contract is to be traded on a
  pre-decided date.
• There are two types of options contracts mainly
  call and put options. In the call options, the
  strike price is referred to the cost at which the
  asset is bought. While for put options, the
  strike price is the cost at which the asset is
  sold.

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Factors to choose your strike price

• Risk Tolerance Risk tolerance is one of the
  important parameters which you should consider
  while you set the strike price. Your risk
  appetite will decide the strike price for you.
  The different types of options have different
  risk levels. With different risk tolerance, you
  can decide the type of options contract which are
  ITM, ATM, and OTM. In the money, option contract
  goes well with option buyer whereas out of money
  goes well with option seller.
• Risk Reward Payoff This is correlated to the
  risk tolerance parameter. If you are a risk savvy
  investor you can opt for an In the Money or At
  the money type of contract. Investors can opt
  for an OTM contract if the risk tolerance is
  high.
• Implied Volatility Every stock option is
  associated with different volatility levels. This
  parameter is influenced by various factors like
  fluctuations in the industry, changes in
  government policies, and other global factors,
  etc.
• Volume/Liquidity This is another important
  factor that helps in determining the strike
  price. The liquidity of the underlying asset will
  help you determine the profitability of the
  trade. If the asset has higher liquidity you can
  yield better profits before the expiry date of
  the contract. Lower liquidity does not offer much
  profit when you exit the trade.

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Conclusion

• If you are someone interested in the derivative
  market hope this article clears your doubts
  around the strike price concept. The strike price
  is an integral parameter when you enter any type
  of derivative contract. Hence, you must
  understand what is strike price in options and
  how to determine strike price basis various
  factors mentioned above.
• You should learn about derivatives even more to
  get a hold on the concept and become an active
  trader in the derivative markets.

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THANK YOU