I first introduced the term “strike price” in this post. Basically, strike price refers to the numeral in an Option contract description. For example, for the GOOG 530 July Call Option, 530 is called the strike price. For the GOOG 500 August Call Option, 500 is the strike price. But what is the significance of the strike price? Which strike price to buy? The answer is: it depends (again!).
Firstly, let me introduce the following terms:
- In-the-money (ITM)
- At-the-money (ATM)
- Out-of-the-money (OTM)
What the above means can be best summed up in the table below:
| Options Description | Out-of-money | At-the-money | In-the-money |
| 1 contract of GOOG 500 Jul Calls | Stock price < $500 | Stock price = $500 | Stock price > $500 |
So for a GOOG 500 Jul Call Option, when the GOOG stock price is < $500, we say the Option is OTM. When the GOOG stock price is exactly $500, we say the Option is ATM. And when the GOOG stock price is > $500, we say the Option is ITM.
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