You do not agree a strike price with anyone. You pick one off a ladder the exchange publishes, and the exchange adds more rungs as the market moves. That is the part most explanations skip, and it changes how you should read an option chain.
What is Strike Price?
The strike price is the fixed price written into an options contract, and it does not move. A call gives you the right to buy at it, a put the right to sell at it.
The strike price meaning is easy enough. The source is what gets misunderstood: strikes are listed by the exchange under a published scheme, not negotiated between the two sides.
Strike Price in Options: How Does It Work?
NSE lists a set of strikes around the current price of the underlying. The scheme sets a minimum of three below the money, one at the money and three above.
For near and middle month contracts the exchange can run that out to twelve each side, while far month contracts go to six. The spacing between them is a step value, and wider ranges use two or four times that step depending on the expiry month.
The ladder is not static. The exchange may add strikes intraday, in the direction of a price move. New strikes are also introduced the next working day, based on the previous day's closing price.
Strike Price Example
Take three strikes at one moment, with the underlying at 2,000.
A 1,900 call is in the money, because you could buy at 1,900 what the market prices at 2,000. Part of its premium is that 100 of built-in value.
A 2,000 call is at the money, with no built-in value at all. A 2,100 call is out of the money, and every rupee of its premium is time value, which falls to zero at expiry.
Premium is quoted per unit, so multiply by the Lot Size in the Stock Market to see what the position costs.
Strike Price for Call and Put Options
The strike works the same way in both, but the direction flips, because a call is in the money when the market price sits above the strike. A put is in the money when the market price sits below it.
The cheap end of the ladder sits at the top for calls and at the bottom for puts. Those strikes are cheap because they need the largest move. Both are covered in Types of Options.
Strike Price vs Spot Price
The strike is fixed for the life of the contract, while the spot price is what the underlying is trading at right now and it moves all day.
The distance between them is the gap your view has to close. Closing it is not enough on its own, because the premium has to be cleared too.
What is the Difference Between Strike Price and Exercise Price?
In practice, none. The two terms describe the same number.
The distinction is one of timing, not value. A strike price definition applies while the contract is trading; exercise price is the term used when the right is actually used.
What Determines the Strike Price of an Option?
Not the buyer, and not the seller. Three separate things determine which strikes exist at any time.
The price of the underlying sets where the ladder is centred. The step value sets how far apart the rungs are, and it widens for contracts further out. The expiry month decides how many rungs there are, with near and middle months carrying more than far months.
After that, market movement decides what gets added, and a sharp move brings new strikes in that direction, sometimes during the session itself.
How to Choose a Strike Price?
Start with what the strike costs you rather than what it could pay. An out of the money strike is cheap because it usually expires worthless, and the further out you go the cheaper and the less likely it gets.
Be honest about the odds here. A SEBI study found that 93% of individual traders incurred losses in equity F&O between FY22 and FY24, with aggregate losses above ₹1.8 lakh crore.
SEBI published an updated study for FY25 and FY26 in August 2026, so check that for the current position.
Work out the move from spot to your strike, add the premium, and ask whether the underlying has done that in the time left. Size the position before choosing the rung, which is the discipline behind F&O Trading.
Also Read: Once you understand the basics, learn How to Choose Strike Price in Options Trading by considering the strike, premium, spot price and time to expiry.
Conclusion
The strike price is a choice from a list, and the list tells you something. A ladder crowded near the money and thin at the edges shows you where the trading is.
Before you pick a rung, do three things. Note the distance from spot to your strike. Add the premium to get the real breakeven, then check the expiry against how long that move usually takes.
If the move needed looks unlikely in the time available, a cheaper strike does not fix it. It just loses less slowly. Losses in derivatives can exceed the amount you first commit.