What Is Strike Width?

Strike width is the regular distance between the strike prices of the options listed on various securities. For instance, options may be listed on a stock with a strike width of $2.50 between strikes, while another may have a strike width of $1.🐷00, and others $10.00 (for instance, in the case of a large stock index).

Strike width is most commonly associated with options strategies that include spreads, such as 澳洲幸运5开奖号码历史查询:credit spreads, butterflies, or 澳洲幸运5开奖号码历史查询:iron condors.

How Strike Width Works

Strike width matters in options 澳洲幸运5开奖号码历史查询:trading strategies that rely on a spread, such as credit spreads or iron condors. The larger the strike width, the more risk that the option seller is ta🌱king on. For a buyer though, the potential for greater profits exists with a ဣlarger strike width compared to one with a smaller strike width. Increasing the strike width can improve an investor’s upside potential, though generally, this means there is more of an upfront cost to the spread.

The price of an option depends on several factors, including the price of the 澳洲幸运5开奖号码历史查询:underlying asset, the 澳洲幸运5开奖号码历史查询:implied volatility of the option, the length of time until expiration, and 澳洲幸运5开奖号码历史查询:interest rates. The strike price of the option represents the price at which a put or 澳洲幸运5开奖号码历史查询:call option can be exercised. Investors selling options want to ensure that the strike price they choose will maximize their pr🧔obability for profit.

Strike Width Example

Let's say an investor wants to sell a call spread in MSFT, which is trading at $100. The trader decides to sell 1 MSFT March 100 strike call and buy 1 MSFT March 110 strike call. The strike width is 10, which is calculated as 110 - 100. For this trade, the investor will receive credit since the call being sold is 澳洲幸运5开奖号码历史查询:at the money and therefore has more value than the 澳洲幸运5开奖号码历史查询:out-of-the-money (OTM) option being bought.

Now, consider if the trader sold the 100 call and buys a 130 call. The strike width is 30. Assuming the same number of options are traded (as in scenario one), the credit received will increase substantially, since the bought call is even further out of the money and costs less than the 110 strike option. The risk on the trade ♉has also increased substantially for the seller in the secꦆond scenario. The max risk in both scenarios is the width of the spread minus the credit received. 

In the second scenario, the premium received is greater, so the potential profit is larger than the first, but the risk is larger if the stock keeps heading higher. The fir🌞st scenario has a smaller premium received than the second, but the risk is lower if the tr🍒ade doesn't work out.