Strike Price
The strike price is the predetermined price at which an option can be exercised according to its contract terms.
✦ Key Insight
It strongly affects option value, moneyness, and payoff at expiration.
✕ Common Misconceptions
The strike price is not the premium and is not necessarily the market price when the option is traded.
Detailed Explanation
In Practice
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Call Option
A call option gives its holder the right, but not the obligation, to buy an underlying asset at a specified strike price before or at expiration, depending on the contract style.
Put Option
A put option gives its holder the right, but not the obligation, to sell an underlying asset at a specified strike price before or at expiration, depending on contract style.
Expiration Date
An expiration date is the date and time after which an option or expiring derivatives contract is no longer active.
Option Premium
Option premium is the price paid by an option buyer and received by an option seller for the contract.
Moneyness
Moneyness describes an option's strike price relative to the current underlying price.