Strike Price

AAA

DEFINITION of 'Strike Price'

The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold.

The difference between the underlying security's current market price and the option's strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.

Also known as the "exercise price."

INVESTOPEDIA EXPLAINS 'Strike Price'

Strike prices are one of the key determinants of the premium, which represents the market value of an options contract. Other determinants include the time until expiration, the volatility of the underlying security and prevailing interest rates. Strike prices are established when a contract is first written. Most strike prices are in increments of $2.50 and $5.

RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Multi-Leg Options Order

    A type of order that allows an option trader to simultaneously ...
  3. Exercise

    To put into effect the right specified in a contract. In options ...
  4. Option

    A financial derivative that represents a contract sold by one ...
  5. Option Chain

    A form of quoting options prices through a list of all of the ...
  6. Time Value

    The portion of an option's premium that is attributable to the ...
Related Articles
  1. Manage Risk With Trailing Stops And ...
    Options & Futures

    Manage Risk With Trailing Stops And ...

  2. Costless Collars: Because Asset Allocation ...
    Options & Futures

    Costless Collars: Because Asset Allocation ...

  3. Employee Stock Options (ESO)
    Options & Futures

    Employee Stock Options (ESO)

  4. Trading Options With The Zero-Cost Cylinder
    Options & Futures

    Trading Options With The Zero-Cost Cylinder

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center