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I'm looking at apple options and found this strange pricing in the options table. It seems like if you buy a lower strike price your total cost for buying the stock and options is much less. Why is this? 

Bid     Ask     Strike Price    Calculated cost of shares

19.20   19.45   115.00          = ~19.3 + 115.0 = 134.3

9.30    9.35    130.00          = ~9.3 + 130    = 139.3
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    You missed the volatility of the stock, check that you will get your answer. I am assuming the time frame is same. I am assuming, seems quite plausible, you got this from a textbok and not from the market.
    – DumbCoder
    Commented Jul 20, 2015 at 16:45
  • This is real December 18, 2015 AAPL options.
    – user3413723
    Commented Jul 20, 2015 at 16:51
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    Pricing looks about right for the current 2016 Jan strikes. With AAPL @$130+ one strike is nearly all in the money vs the other, just at the money. A 140 call will look like a higher total cost $140+$5.60= $145.60. (I was 1 month off)
    – JTP - Apologise to Monica ♦
    Commented Jul 20, 2015 at 16:51
  • @MarkPlotnick it makes sense to me that the price for an option at a lower strike price is higher than the price of one with a higher strike price. But what doesn't make sense to me is why the difference in option prices is only $10, while the difference in strike price is $15.
    – user3413723
    Commented Jul 26, 2015 at 9:13
  • Thanks, I misunderstood the question. The discrepancy is due to the probability model used to price the options. The difference in prices will vary, and at the monent of expiration, if they're both in the money at that time, will indeed be $15. I will write up an answer for this or find an existing answer that explains it.
    – Mark Plotnick
    Commented Jul 26, 2015 at 9:55

2 Answers 2

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On July 20, when you posted this question, AAPL was trading almost at 115. The market charges an extra premium for buying an option that is in the money (or on the money like this case) over one that is out of the money. In order for the 130 Call to be worth something the market has to go up 15 points. Otherwise you lose 100% of your premium. On the other hand with the 115 every point that the market goes up means that you recover some of that premium. It is much more likely that you recover part of your premium with the 115 than with the 130. With the higher probability of losing part of the premium, the sellers are going to be reluctant to write the option unless they receive larger compensation.

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Think about it this way. If the strike price is $200, and cost of the option is $0.05. $200 + $0.05 is $200.05. That does not mean that the price of buying the option is more. Neither is the option writer going to pay you $70 to buy the contract.

When you are buying options, you can only have a limited downside and that is the premium that you pay for it. In case of the $115 contract, your total loss could be a maximum of $19.3. In case of the $130 contract, your total loss could be a maximum of $9.3.

This is due to the fact that the chances of AAPL going to hit $130 is less than the chance of AAPL hitting $115. Therefore, option writers offer the lower probability contracts at a lower price.

Long story short, you do not pay for the Strike price. You only pay the premium and that premium keeps getting lower with and increase in Strike price(Or decrease if it is a put option). Strike price is just a number that you expect the stock or index to break. I would suggest you to read up a little more on pricing from here

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