Strike price?

Business & Management
#1

When a derivative contract is exercised, the strike price is the price at which it can be purchased or sold. The strike price for call options is the price at which the security may be purchased by the option holder, the strike price for put options is the price at which the security may be sold. The exercise price is another name for the strike price. When a contract is originally drafted, strike prices are determined. It informs the investor of the price at which the underlying asset must trade in order for the option to be in the money. When the underlying stock price is below the strike price, a buyer of a put option is in the money, and when the underlying stock price is above the strike price, the buyer is out of the money. An OTM option will not have intrinsic value, but it may still have a value depending on the underlying asset’s volatility and the remaining time to expiration.

#2

Strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold.

Strike price is also known as the exercise price.

  • Strike price is the price at which a derivative contract can be bought or sold (exercised)
  • Derivatives are financial products whose value is based (derived) on the underlying asset, usually another financial instrument
  • The strike price, also known as the exercise price, is the most important determinant of option value

Example:

If a stock price is currently high say for 10$ but you think it’s too high and want to purchase that for 9$ but on the same hand you don’t have enough time to always stay alert in the market to see whether it hit your asking price. Then in this scenario your stock broker gives you option to set the price today on your stock broking app and when the stock will hit that 9$ mark set by you then if you have that balance available in your demat account then that stock will be automatically be purchased by your stock broker.

That 9$ mark set by you, when achieved by the stock is known as Strike price.