Choosing a strike begins with a forecast: where could the underlying trade, and by when? Compare several calls instead of selecting a contract solely because its premium looks affordable. First review how to buy a call option step by step if the order process is new.
Understand moneyness
- In the money: strike below the stock price.
- At the money: strike near the stock price.
- Out of the money: strike above the stock price.
Moneyness describes the strike’s position, not total trade profitability. An in-the-money call can still lose if its value does not recover the premium paid.
Compare three strikes
Assume the stock trades at $100 and all calls share one expiration.
| Strike | Premium | Breakeven | Trade-off |
|---|---|---|---|
| $95 ITM | $8.00 | $103 | Higher cost, more intrinsic value |
| $100 ATM | $4.50 | $104.50 | Balanced cost and sensitivity |
| $105 OTM | $2.00 | $107 | Lower cost, larger move required |
The $105 call is cheapest, but the stock must rise furthest to reach expiration breakeven. The $95 call costs more but starts with intrinsic value.
Use delta as a comparison tool
Delta estimates how much an option may change for a $1 underlying move, all else equal. ITM calls generally have higher delta; far OTM calls generally have lower delta. It changes with price, time and volatility, so it is an estimate rather than a promise.
Match the strike to the target
Calculate outcomes at your expected price, not only at an extreme best case. If a six-week target is $108, a $110 strike may remain out of the money even when the direction was correct.
max(0, stock price − strike) − premium
Check liquidity
A theoretically attractive strike may be impractical when its bid-ask spread is wide. Compare volume, open interest and spread width; trading friction can erase a small pricing advantage.
A repeatable process
- Define the price target and date.
- Compare one ITM, one near-ATM and one OTM call.
- Record premium, delta, breakeven and liquidity.
- Calculate multiple expiration scenarios.
- Choose a full-premium loss that fits the risk plan.
Frequently asked questions
What strike is best for a beginner?
No strike is automatically best. The selection must fit the thesis, budget and risk.
Why are far OTM calls cheap?
They have no intrinsic value and need a larger move to finish with value.
Continue the series
Next, learn how to choose expiration and review call-buying risks. The free Level 1 course provides structured lessons.
Options involve risk. Educational content only; not investment advice.