Definition
The strike price, also called the exercise price, is the fixed price at which an option holder can buy (for a call) or sell (for a put) the underlying asset. It is set in the contract and does not change when the market price moves.
How it works
Exchanges list a ladder of strikes at regular intervals around the market price. The strike sets moneyness: a call is in the money when the underlying is above the strike, a put when it is below, and both are at the money when the two are about equal; otherwise they are out of the money.
Strike choice trades cost against odds. In-the-money options cost more because they carry intrinsic value and move more like the underlying; out-of-the-money options are cheaper but need a bigger move and more often expire worthless. Strikes can be adjusted after corporate actions such as splits.
Formula / convention
Call intrinsic value = max(S − K, 0); Put intrinsic value = max(K − S, 0) (S = underlying price, K = strike)
Illustrative example
A fictional Sample Co share trades at HK$100. A call with a HK$95 strike is in the money with HK$5 of intrinsic value (100 − 95), while a call with a HK$105 strike is out of the money with none. For puts the picture reverses: a HK$105 strike has HK$5 of intrinsic value (105 − 100) and a HK$95 strike has none.
What to watch for
A far out-of-the-money strike is not a bargain: its low premium reflects a small chance of finishing in the money, and losing the whole premium is common.