Strike Width in Options Trading Looking at options trading, one of the basic concepts you need to learn is the strike width. And it deals with the eternal balance between risk and reward. Strike width refers to the difference between the strike price of the various options in a spread trade. You find strike width usually associated with options strategies that include: credit spreads iron condors
The strike price represents the price at which you can exercise a put or call option. For call options, the strike price is the price at which an underlying stock can be bought. For put options, the strike price is the price at which shares can be sold. The greater the strike width, the greater is the risk the option seller takes on. An option having a larger strike width has a greater profit probability than one having a smaller strike width. When the strike width is increased, it can help improve the profitability of the investor. But it also presents the risk of lowering the capital return.
There are various factors that influence an option’s price Interest rates Underlying asset’s price Option’s implied volatility Period of time till the option’s expiration Investors who sell options would naturally want their strike price to maximize their profit probability.
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