What is strike price in options trading?

Strike price is fundamental in options trading, shaping the dynamics of the contract. It influences whether an option is worth exercising, thereby determining the profitability of the contract. It also affects the premium of an option, which is the cost of buying the option.

What is strike price?

Strike price, also known as exercise price, is a pre-determined price at which the holder of a financial option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security. It’s the price that’s locked in at the inception of the contract, providing a benchmark for the execution of the option contract.

What is the difference between strike price and put option?

For call options, the strike price is where the security can be bought by the option holder, whereas for put options, the strike price is the price at which the security can be sold. Picking the strike price is a key decision for an options investor or trader since it has a very significant impact on the profitability of an option position.

What is a strike price for a call option?

When buying call options, the strike price is the price at which can you buy the underlying asset if you decide to exercise your option. So for example, if you buy a call option contract with a strike price of $15 you’d have the opportunity to buy shares of the underlying stock at $15 each, regardless of the current share price.