Strike Price

The Strike Price is what you’ll be paying for when trading Bitcoin options contracts, much like when trading stocks you pay the Strike Price, not the current market price. Strike Prices are set by the person selling (or “writing”) an option contract. 

They are set when you create an order to buy or sell an option contract, not when the order is filled. Strike Prices act as a Barrier/Stop Order for buying and selling Bitcoin options contracts. Strike Prices can be set at or above the Strike Price. 

That’s where Strike Price, Exercise Price, and Barrier Options get their names from. The key here is to know Strike Prices are set by the amount of premium being charged. 

Strike (limits what you can do), Exercise (exercising your right to buy or sell a stock when Strike is met), and Barrier (a limit that the price must meet in order to complete an option contract).

Options Trading

Options Trading is a way to bet on the future price of a commodity, stock, index, foreign currency, ETF, or just about anything. Strike Price is what you’ll be paying for when trading Bitcoin options contracts. Strike prices are set by the person writing an option contract.

It acts as a barrier/stop order for buying and selling options contracts. Strike prices can be set at or above the Strike Price. Strike prices can be set at the price of two options: equivalent call option and put option.

Equivalent Call Option Price = Strike+Premium 

Put Option Price = Strike-Premium

Strike Price vs Strike

While Strike Prices and Strikes are used interchangeably, they technically mean different things. 

The strike is a price that a stock can be sold at before a put option becomes exercised. The strike price is the predetermined price at which an investor who owns stock or other financial instruments can sell it to another party. 

For example, if you purchase 100 shares of XYZ company at $10 today, you have the option to sell them at the Strike Price. Strike prices are set by the person writing an option contract, not when the order is filled.

Types of Strike Prices

There are several types of Strike Prices available to trade: Market, Strike, One-Cancels-the-Other (OCO), Range, and Time Decay Strike Prices.

Each Strike Price type has its own unique features that help you build your strategy.

Market Strike Price

This is the actual price of the stock at the time of purchase for a call or sale at the time of purchase for a put. The Strike Price of Bitcoin option contract will be the same to the Market Strike Price of BTC.

Market Strike Prices are set by TD Ameritrade for you when creating an Order to buy or sell an option contract.

Strike (Option) Price

This is the price at which an investor can sell shares of stock or other financial instruments. Strike prices are set by the person writing an option contract, not when the order is filled. 

Strike Prices act as a Barrier/Stop Order for buying and selling Bitcoin options contracts. Strike prices can be set at or above Strike Price. Strike Price of bitcoin option contract will be same to Strike price of BTC .

One-Cancels-the-Other Strike Price (OCO Strike) 

This pairs two Strike Prices to create an order that will be executed if the first Strike price is reached. The option contract will not execute unless the secondary Strike Price has been met or exceeded.

For example, you are bullish on XYZ, but want to protect yourself from a major fall in the price. You would set a Strike Price at $25 and another Strike Price at $8, with the order OCO Strike. If the price falls to $8, your entire position will be liquidated.

Range Strike Price

This is used when you want to protect yourself from fluctuations in the market while still allowing for profits if the option contract Strike Price reaches the Strike Price. 

For example, you are bearish on XYZ and want to protect yourself if it falls below $20 per share, but do not want to lose potential gains if it goes above $30 per share. You would set a Strike Price at $25 and another Strike Price at $30 with the order Range Strike.

If the Strike Price is $30, your entire position will be liquidated.

Time Decay Strike Price 

This can also be used when you want to protect yourself from fluctuations in the market while still allowing for profits if the option contract Strike Price reaches the Strike Price. 

The difference between Range and Time Decay Strike Prices is that the time decay Strike Price will always be closer to the Strike Price than the Range Strike Price. 

For example, you are bullish on XYZ and want to protect yourself if it falls below $20 per share. You would set a Strike Price at $8 and another Strike Price at $25 with the order Time Decay Strike. If the Strike price is $25, your entire position will be liquidated.

Expiration Strike Price 

This is the Strike Price of an option contract when it expires, so you can sell your option at the Strike price to close your position or exercise your right to buy/sell shares or other financial instruments.

The Strike Price value is determined by American-style or European-style Strike Prices. Strike prices can also be customized based on type, whether the option is a Call (buy) or Put (sell), and Strike Prices are set by you when placing an order to buy or sell a contract. 

Strike Price can be added, modified, or removed from an existing option contract order after the order has been placed.

Importance of Strike Price

There are several reasons why a trader should know about Strike Prices:

  • Helps you know when to close your position. 
  • Helps you set a Stop Order Strike Price that acts as a Barrier/Stop Order for buying and selling Bitcoin options contracts 
  • Determines the value of an option contract Strike (Option) price 
  • Strike Price of an option contract determines whether you receive gains or incur losses
  • Affects your profitability
  • Used to protect you from fluctuations in the market, while still allowing for profits
  • Helps determine your level of risk/reward S
  • Helps you determine how much it will cost to buy or sell

Key Takeaways

Strike Price is the price at which an option contract can be exercised. They are determined by the value of the underlying asset at the time you place an order. 

Strike Price is used by investors and traders when placing buy or sell orders because it sets the maximum price they will pay for an option contract Strike (Option) price or minimum Strike (Option) price they will receive for selling an option contract Strike (Option) price.

It is important in trading because they have a direct impact on your return on investment. The Strike Price you set, determines whether you receive gains or incur losses at Expiration Strike Price.

It is also used to protect traders from fluctuating markets by setting Strike prices, which act like Barrier/Stop Orders when buying and selling. They can be added, modified, or removed from an existing option contract order after the order has been placed. 

Strike price is the price at which an option contract can be exercised. Strike prices are determined by the value of the underlying asset at the time you place an order.
Strike prices have a direct impact on your return on investment because the Strike Price you set determines whether you receive gains or incur losses at Expiration Strike Price.
Strike Price is used by investors and traders when placing buy or sell orders because it sets the maximum price they will pay for an option contract Strike (Option) price or minimum Strike (Option) price they will receive for selling an option contract Strike (Option) price.
Yes. Strike Price is important for online trading because Strike Prices can be added, modified, or removed from an existing option contract order after the order has been placed.
Strike prices are found in the Bid and Ask price of the option when placing a sell or buy order. Strike Price is also found in the Strike (Option) price field of the product you are trading.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.