Lesson 3 of 20 · 6 min

Strike and expiry: the two coordinates

Every option is located by a price and a date, and both are chosen from a fixed grid.

Think of the option market on a given underlying as a grid. Strikes run along one axis, expiries along the other, and each intersection is a separate tradable contract with its own price, its own liquidity, and its own behaviour. A single stock can have hundreds of these.

The strike is the price at which the contract's transaction would occur. It is fixed for the life of the contract and does not move when the underlying moves. Strikes are listed at standardised intervals, often one, two and a half, or five dollars apart depending on the price of the underlying, so you cannot choose an arbitrary number.

The expiry is the last date the right exists. After it, the contract is gone — either it was used or it lapsed. Listed equity options conventionally expire on a Friday, with monthly cycles at longer dates and weekly expiries clustered near the present, meaning the near term has far finer time resolution than the far term.

Both coordinates matter because they control different things. The strike determines whether the contract has intrinsic value and how sensitive it is to price moves. The expiry determines how much time remains for the underlying to move, which is what most of the premium on a distant contract is actually paying for. Two contracts on the same underlying with the same strike but different expiries are genuinely different instruments, and one can gain while the other loses.

Key terms

Strike (exercise price): The fixed price at which the contract's transaction would occur. Set at listing and never changes.
Expiry: The final date on which the right exists. After expiry the contract no longer exists in any form.
Option chain: The full grid of listed strikes and expiries for one underlying, with a quote at each intersection.
Days to expiry (DTE): Calendar days remaining. Used constantly as shorthand, as in a 30 DTE contract.

Worked example

One strike, four expiries, four prices

Underlying at $50. The $50 call, priced across the chain at a steady 30% implied volatility and a 4% rate.

7 days to expiry: $0.85
30 days to expiry: $1.80
90 days to expiry: $3.21
365 days to expiry: $6.88
Intrinsic value in all four cases: $0.00

Same strike, same underlying, same moment, prices differing eightfold. Every cent of all four premiums is paying for time.

Check yourself

Two calls on the same stock share a $50 strike, with the stock at $50. One expires in 7 days at $0.85, the other in 90 days at $3.21. What is the $2.36 difference paying for?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.