Strike Price
The strike price is the predetermined price at which the buyer of an option can exercise the right to exchange the underlying asset. On NSE, Nifty options are available across dozens of strike prices at 50-point intervals, while Bank Nifty options trade at 100-point intervals.
The strike price is the anchor around which an option's moneyness is determined. Whether an option is in-the-money, at-the-money, or out-of-the-money depends entirely on the relationship between the strike price and the current market price of the underlying at any given moment.
NSE offered a wide range of strikes around the at-the-money level for Nifty and Bank Nifty options, enabling participants to express precise views on the market's likely range. For instance, if Nifty traded at 18,000, strikes were available from 16,000 to 20,000 in 50-point increments, each with its own premium reflecting the probability of the underlying reaching that level before expiry.
The choice of strike price determines the trade-off between premium cost and probability of profit. Deep out-of-the-money options carry low premiums but a low probability of finishing in-the-money. At-the-money options are more expensive but have a roughly equal chance of expiring in or out of the money. In-the-money options behave more like the underlying itself and carry higher premiums that largely reflect intrinsic value.
A misconception in options trading is that lower-premium, far out-of-the-money options represent better value because the potential percentage return is higher. While this is mathematically true in the event of a large move, the frequency with which such moves materialised historically was low enough that the expected value of repeatedly purchasing far out-of-the-money options has tended to be negative. This does not mean such strategies have no legitimate use — they can serve as tail-risk hedges — but the framing of them as cheap should be examined carefully.
Strike selection is a central decision in any options strategy. In strategies such as straddles, strangles, and iron condors, the relative positioning of multiple strikes determines the maximum profit zone, the breakeven levels, and the risk-reward profile of the overall position. Changing even one strike in a multi-leg strategy can materially alter these parameters.