Strike Price, Premium, and Expiration

The Three Pillars of Every Option Contract

Every options contract is defined by three core components: the strike price, the premium, and the expiration date. Mastering how these three elements interact is essential before placing your first wheel trade.

Strike Price

The strike price (or exercise price) is the fixed price at which the option holder can buy (call) or sell (put) the underlying shares. Strike prices are typically listed in fixed increments ($1, $2.50, or $5 apart depending on the stock price). For the wheel, the strike price you choose determines your effective buy price (for puts) or sell price (for calls).

• In-the-money (ITM): Strike is favorable relative to the current stock price. For calls, strike < stock price. For puts, strike > stock price.
• At-the-money (ATM): Strike is approximately equal to the current stock price.
• Out-of-the-money (OTM): Strike is unfavorable relative to the current stock price. For calls, strike > stock price. For puts, strike < stock price.

Premium

The premium is the price of the option contract -- what the buyer pays and the seller receives. It is quoted per share, so multiply by 100 for the total cash amount per contract. Premium is influenced by the stock price relative to the strike, time remaining until expiration, implied volatility, interest rates, and dividends.

Expiration Date

Every option has an expiration date after which the contract ceases to exist. Standard monthly options expire on the third Friday of each month. Weekly options (weeklies) expire every Friday. The time remaining until expiration is a major driver of premium -- more time means more premium but also more uncertainty.