Strike Price

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What is a 'Strike Price'

A strike price is 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."

BREAKING DOWN '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.

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RELATED FAQS
  1. How do I set a strike price for an option?

    Learn about the strike price of an option and how to set a strike price for call and put options depending on risk tolerance ... Read Answer >>
  2. How does the term 'in the money' describe the moneyness of an option?

    Find out what in the money means about the moneyness of call or put options and what it indicates about the relationship ... Read Answer >>
  3. What happens when a security reaches its strike price?

    Learn more about the moneyness of stock options and what happens when the underlying security's price reaches the option ... Read Answer >>
  4. Can an option have a negative strike price?

    The simple answer is that, at least when it comes to exchange traded options, an option can't have a negative strike price ... Read Answer >>
  5. How do I change my strike price once the trade has been placed already?

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  6. What is the difference between in the money and out of the money?

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