Strike price, moneyness
The strike price of an option is the price a put or call option can be exercised at. It is also known as the exercise price. Picking strike price is one of two key decisions (the other being time to expiration) an investor or trader must make when selecting a specific option. Strike price has an enormous bearing on how an option trade will play out.
Another important parameter is option’s moneyness:
It should be noted that an ITM (in-the-money) option is in an overwhelming majority of cases priced higher than an OTM (out-of-the-money) one. It’s not in the least because of intrinsic value (Value at expiration on the chart above) — as opposed to extrinsic value catching the not-so-obvious part of an option’s premium (time value and volatility/proneness to big price moves), this one’s easy: it’s the absolute difference between an option’s strike price and current asset price: |StrikePrice-AssetPrice|.