# Confusion in strike price and premium

##### New Member
I am new to option trading and I have some confusion in the relationship between strike price and premium. Take this example of a stock and for simplicity we are only considering a long call buy option

Spot price = 200 rs
Strike price = 300,275,250,175,150,100,50
expiry= 20 days

Because 175 is near to spot price it will be our ATM. Delta would be higher for ITM and OTM but not for ATM

ATM=175
ITM= 150,100,50
OTM= 300,275,250

Question 1: Can we buy a call option at any of these strike price? else it should be greater than or less than spot price?
Question 2: If I buy a call option at ATM which is lesser than spot price and the spot moves to 210 or 185 what happens to the premium?
Question 3: What happens to premium if I i buy option contract's with extreme strke price(300,50) with 20 days to expire

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#### mohan.sic

##### Well-Known Member
I am new to option trading and I have some confusion in the relationship between strike price and premium. Take this example of a stock and for simplicity we are only considering a long call buy option

Spot price = 200 rs
Strike price = 200,275,250,175,150,100,50
expiry= 20 days

Because 175 is near to spot price it will be our ATM. Delta would be higher for ITM and OTM but not for ATM

ATM=175
ITM= 150,100,50
OTM= 200,275,250

Question 1: Can we buy a call option at any of these strike price? else it should be greater than or less than spot price?
Question 2: If I buy a call option at ATM which is lesser than spot price and the spot moves to 210 or 185 what happens to the premium?
Question 3: What happens to premium if I i buy option contract's with extreme strke price(200,50) with 20 days to expire

your idea of itm atm and otm is not correct. Please start from basics and then go step by step to advanced concepts like delta or other greeks. Because at this point even if someone gives you answer, it will lead you to more confusion as your basics are wrong.

#### mohan.sic

##### Well-Known Member
Spot is at 200 and there is 200 strike available.
Hence 200 strike becomes ATM. And 175 CE becomes ITM.

why do you think 175 becomes ATM when it is clearly below 200.

##### New Member
Spot is at 200 and there is 200 strike available.
Hence 200 strike becomes ATM. And 175 CE becomes ITM.

why do you think 175 becomes ATM when it is clearly below 200.
Sorry that was a mistake from my part. It was 300 and not 200, I have edited the post with correct values.

#### mohan.sic

##### Well-Known Member
Sorry that was a mistake from my part. It was 300 and not 200, I have edited the post with correct values.

When spot is 200, only Strike 200 will be called as ATM.
Below 200 strikes will be called as ITM strikes. So 175 will be called as ITM.

##### New Member
Yeah I read it in some sites about ATM=Strike Price=Spot price but in reality we will never get a Strike price same as spot. So I went with zerodha's ATM description. Can you tell me if we can buy a call option at any of those strike prices? else it should be greater than or less than spot price?

#### mohan.sic

##### Well-Known Member
As per zerodha from the same link you posted:

From the definition of ATM option that we posted earlier we know, ATM option is that option strike which is closest to the spot price. Considering the spot is at 8060, the closest strike is probably 8050. If there was 8060 strike, then clearly 8060 would be the ATM option. But in the absence of 8060 strike the next closest strike becomes ATM. Hence we classify 8050 as, the ATM option.

So in your example, when spot is at 200 and when a strike is available at 200, naturally that becomes the ATM Strike. How can 175 become ATM strike even as per your logic that nearest strike should be taken as ATM.

Is it clear ? I am repeating please read the basics carefully.

##### New Member
I think there is a misunderstanding here. There is no 200 strike price, it was a mistake, I edited the first post with real 300 strike price
Sorry that was a mistake from my part. It was 300 and not 200, I have edited the post with correct values.

#### mohan.sic

##### Well-Known Member
1) It is not misunderstanding from my end if you edit your posts after my reply.

2) Again from your example, when spot is at 200, and if available Strikes are 300,275,250,175,150,100,50 ( as you mentioned after edit)

Answer: I cannot answer unrealistic questions. Because Intervals between strikes will not increase/decrease like you mentioned in your example. They will increase evenly. Like below:

150, 200, 250.. ( intervals of 50 ) OR
150,175, 200, 225..... ( intervals of 25 ) OR
180, 190, 200, 210, 220... ( intervals of 10) etc.

So I cannot answer your question where intervals are sometimes 25 and 50 other times.

Please do not say that this is just an example to understand. Because even in examples we should not change the basics / structure of subject/strikes. Please ask the question correctly with good data. Do not mistake me, but this is my 5th reply to this simple query. Hope you understand and value the time.