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Strike Price

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 describestock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where thesecurity can be bought (up to the expiration date), while for put options the strike price is the price at which shares can besold.

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; themaximum amount that can be lost is the premium paid.

Also known as the "exercise price."

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1. Bull Call Spread

2. Market Value

3. Option

4. Exercise

BREAKING DOWN 'Strike Price'

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

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RELATED FAQS

1. How do I determine the breakeven point for a short put?

The breakeven point for a short put is the strike price of the option minus the premium. Selling puts is a way for traders ... Read Full Answer >>

2. What options strategies are best suited for investing in the retail sector?

Retail is a broad sector whose seven discrete segments all exhibit greater volatility than the broader market. The sector ... Read Full Answer >>

3. What happens if a software glitch fails to execute the strike price I set?

If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>

4. How do traders use out-of-the-money options to hedge?

Traders can utilize out-of-the-money options to hedge an existing market position by either buying or selling options. A ... Read Full Answer >>

5. How is a short call used in a covered call option strategy?

In a covered call strategy, a trader sells a short call at a strike price above the current price of the underlying stock. ... Read Full Answer >>

6. Can I buy index options on the Dow Jones Industrial Average?

The Chicago Board Options Exchange, or CBOE, offers index options on the Dow Jones Industrial Average that are European-style ... Read Full Answer >>

7. What's an effective options strategies for investing in the food and beverage sector?

Options strategies that are well-suited for investors in the food and beverage sector are writing covered calls and the married ... Read Full Answer >>

8. What options strategies are best for investing in the industrial sector?

Two options strategies that are well-suited for investors in the industrial sector are the covered call strategy and the ... Read Full Answer >>

9. What does it mean to be long or short a derivative?

A derivative is a type of security in which the price of the security is dependent on one or more underlying assets. A derivative ... Read Full Answer >>

10. What are some examples of horizontal integration?

One option strategy that can help you earn additional income in the automotive sector is to sell covered calls against long ... Read Full Answer >>

11. How can I profit from a decline of stock prices in the insurance sector?

Some of the methods of profiting from a decline in the insurance sector are shorting insurance stocks, shorting insurance ... Read Full Answer >>

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A call option gives the buyer or holder the right, but not the obligation, to buy the underlying security at a predetermined ... Read Full Answer >>

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The strike price of an option is the price at which the contract can be exercised. The strike price of a stock and an index ... Read Full Answer >>

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A long position in an asset signifies that the investor owns the asset. On the other hand, when an investor buys a call option, ... Read Full Answer >>

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A covered call is an option strategy where you have a long position in an asset and sell call options contracts on the same ... Read Full Answer >>

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A covered call is an option strategy you can use to reduce risk on your long position in an asset by writing call options ... Read Full Answer >>

20. What is an option's implied volatility and how is it calculated?

Implied volatility is a parameter part of an option pricing model, such as the Black-Scholes model, that gives the market ... Read Full Answer >>

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An option is a financial instrument whose value is derived from an underlying asset. A call option is an agreement that gives ... Read Full Answer >>

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The best options strategies for investing in the financial services sector exploit the sector's higher-than-average volatility. ... Read Full Answer >>

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A call option is a contract that gives the buyer the right to buy a specified quantity of an underlying asset at a predetermined ... Read Full Answer >>

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The simple answer is that, at least when it comes to exchange traded options, an option can't have a negative strike price ... Read Full Answer >>

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