Do You Have To Hit The Strike Price To Make Money In Options

Options trading can exist one of the fastest means to make serious money on a stock. And choosing the right options strike price can yield triple-digit gains in a matter of weeks.

For a relatively low cost, the right options trading strategy tin multiply the gains possible over but buying or selling the underlying stock.

The secret is knowing the right options trade. And that involves choosing the right options strike price to use.

The strike price on an option is the price you will pay or receive if you exercise the option. For a call option, it's what you pay for the underlying stock if you do the option. For a put option, it's what you receive for the stock if you exercise the option. This is different from the price you pay for the option itself, which is called the premium.

As you lot tin can tell, the value of the option changes based on how close or far the stock's actual cost is to the strike price.

At that place are three types of strike prices, or strikes, and they depend on where the underlying stock is trading at the time. They are:

In the money (ITM) = The strike price is below the stock'southward current toll for a call, or above it for a put. This means you can practice the pick for a profit.
At the money (ATM) = The strike price is the same as the stock'south toll. This also includes strikes that are near the money, where the strike is very close to the stock's price.
Out of the money (OTM) = The strike cost is in a higher place the stock'southward price for a phone call, or beneath information technology for a put.

The value of each type of strike changes from twenty-four hour period to mean solar day. ITM options accept intrinsic value since the pick can exist exercised to purchase or sell a stock for a profit. In the case of a phone call option, if the stock's actual price is above the strike cost, and so you can earn the difference between those prices by exercising the option.

OTM options accept no intrinsic value and are mostly comprised of time value. The longer an options contract has until expiration, the more time value information technology has. Fourth dimension value means the selection has the chance to go more valuable over time if the stock'due south toll changes enough. If the underlying stock is the aforementioned price at options expiration equally information technology is at present, the pick would be worthless.

ATM options also take no intrinsic value. They are typically the strike prices with the most trading activity because they offering the combination of time value and cost that make them attractive to traders.

Just this can seem abstract if you've never traded options.

Here's a real-globe example using Apple Inc. (NASDAQ: AAPL) and its options to testify what the unlike strike prices mean in practise.

Call Options

Apple stock traded at $248.82 a few days ago. Let'southward run across where the following call option strikes were at that time.

$245 call: in the money

$250 phone call: at the coin (or near the money)

$255 phone call: out of the coin

The $245 phone call had an intrinsic, or real, value since it was in the money. That means y'all had the right to purchase shares of a stock trading at $248.82 for $245.00, netting a turn a profit of $three.82 per share.

It also had time value, because the options have non yet expired. Apple's stock could've risen even higher, making the selection more than valuable.

Put Options

Now, let'due south await at puts with the same strike prices with Apple tree stock still trading at $248.82.

$245 put: out of the money

$250 put: at the money (or near the money)

$255 put: in the money

In this case, the $255 put has real value. You accept the correct to sell a stock trading at $248.82 per share for $255 per share, making a profit of $6.18 per share.

Again, the more "in the money" an option is and the more time left to expiration, the more that option will toll. Conversely, the more "out of the money" an selection is and the less time left to expiration, the less the option will cost.

By using different strike prices, with or without different expiration dates, yous can customize your options merchandise to meet your specific investment goals.

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Source: https://moneymorning.com/2019/11/08/how-to-use-the-options-strike-price-to-maximize-gains/

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