💼 Capital Market Chronicles – Episode 188: OPTIONS STRIKE PRICE (PART II)
In the world of options, variety is the spice of trading 🌶️. Having multiple strike prices available for a single stock is essential for a healthy, active options market. Let’s break it down.
📌 Why Multiple Strike Prices Matter
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Fixed Price for Transactions 💵
The strike price gives traders certainty — the price at which they can buy or sell the asset. This makes executing planned strategies easier and reduces surprises. -
Liquidity 💧
More strike prices mean more participants and trades, keeping the market active. Without multiple strike prices, trading could become sluggish, and small trades could move prices disproportionately. -
Flexibility 🔄
A range of strike prices allows traders to align options with their market predictions. Whether you’re bullish, bearish, or just hedging, there’s a strike price that fits your strategy.
⚖️ Evaluating Options Based on Strike Price
The relationship between strike price and market price determines if an option is:
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In the Money (ITM) 💎 – Profitable if exercised immediately.
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Call Option: ITM if market price > strike price.
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Example: Market = ₹1,050, Strike = ₹1,000 → Call option is ITM.
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Put Option: ITM if market price < strike price.
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Example: Market = ₹950, Strike = ₹1,000 → Put option is ITM.
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Out of the Money (OTM) ⚠️ – Not immediately profitable.
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Call Option: OTM if strike price > market price.
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Example: Market = ₹950, Strike = ₹1,000 → Call option is OTM.
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Put Option: OTM if strike price < market price.
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Example: Market = ₹1,050, Strike = ₹1,000 → Put option is OTM.
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At the Money (ATM) ⚖️ – Strike price equals market price.
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Example: Market = Strike = ₹1,000 → Option is ATM.
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While ATM options don’t offer immediate profit, they’re useful for gauging market direction and planning your next move.
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Multiple strike prices provide choice, flexibility, and strategic depth to the options market. They let traders tailor trades to their risk appetite, market outlook, and desired payoff, making options more versatile and powerful. 💹
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