Exercise Price: Calls, Puts, In and Out of The Money (2025 Guide)

Whether you’re a seasoned investor or just exploring the world of options, understanding the exercise price—also known as the strike price—is essential. It’s not just a technical detail; it’s the central figure that determines your profit, loss, and overall strategy in options trading. In 2025, with increased activity on the ASX derivatives market and tighter regulations from ASIC, getting to grips with calls, puts, and the nuances of ‘in the money’ vs ‘out of the money’ has never been more relevant for Australian investors.

What Is an Exercise Price?

The exercise price is the fixed price at which the holder of an options contract can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset. This price is set when the option is first written, and it’s the benchmark against which the option’s value is measured at expiry or exercise.

• Example: If you buy a call option on BHP shares with an exercise price of $45, you have the right to purchase those shares for $45 each, regardless of the current market price.

In 2025, the ASX has continued to offer a range of strike prices for popular equities and indices, giving traders more flexibility to match their market views with precise risk profiles.

Calls, Puts, and How Exercise Price Works for Each

Options come in two flavours: calls and puts. Each reacts differently to the movement of the underlying asset’s price in relation to its exercise price.

Call Options

• Right to Buy: A call option gives you the right (but not the obligation) to buy the underlying asset at the exercise price.
• Profit When Price Rises: Calls gain value as the underlying share price rises above the strike price.
• Example: If you hold a call option on CSL at a $300 exercise price and CSL shares jump to $330, your option is now ‘in the money’—you could buy at $300 and immediately sell at $330, pocketing the difference (minus the option premium).

Put Options

• Right to Sell: A put option gives you the right to sell the asset at the exercise price.
• Profit When Price Falls: Puts become valuable as the underlying price drops below the strike price.
• Example: If you own a put option to sell NAB at $29 and NAB falls to $25, your put is ‘in the money’—you can sell at $29 when the market is paying $25.

In 2025, ASIC’s updated guidelines for options trading platforms have increased transparency around pricing, making it easier to see the relationship between market price and strike price in real-time.

In the Money vs Out of the Money: Why It Matters

The phrases ‘in the money’ (ITM) and ‘out of the money’ (OTM) are shorthand for whether exercising your option would be profitable, based on the current market price versus the exercise price.

• In the Money (ITM):
  • Call Option: Market price > Exercise price
  • Put Option: Market price < Exercise price
• At the Money (ATM): Market price = Exercise price (no immediate profit or loss)
• Out of the Money (OTM):
  • Call Option: Market price < Exercise price
  • Put Option: Market price > Exercise price

Let’s say you bought a call option on the ASX200 index with a strike price of 7,500. If the index is trading at 7,800, your option is ITM by 300 points. If it falls to 7,200, the option is OTM and likely worthless at expiry.

With the growth of zero-commission trading apps in 2025, more Australians are speculating on short-term movements, making a clear grasp of ITM and OTM status vital for risk management.

Recent Trends and Policy Updates in 2025

Australian regulators in 2025 have tightened rules around marketing and disclosure for derivatives, with ASIC mandating clearer risk warnings and improved education resources. The ASX has expanded its offering of weekly and mini options, allowing traders to access more granular strike prices and expiry dates. This gives both retail and institutional investors more choice—but also requires more precision in understanding how the exercise price affects each trade.

With ongoing volatility in tech and mining stocks, as well as persistent inflation concerns, options trading volumes have soared. For those using options for hedging—such as protecting a portfolio from a downturn—choosing the right strike price is critical to balancing cost against protection.

Mastering the Exercise Price for Smarter Trading

The exercise price is the heartbeat of every options contract. Whether you’re seeking leveraged gains, hedging risk, or just exploring new strategies, knowing how calls, puts, and the concepts of ITM and OTM work will help you navigate the fast-evolving Australian derivatives landscape in 2025.