Strike Price

In options trading, the terms strike price and exercise price refer to the price at which an option holder is entitled to purchase the option’s underlying asset if the option is in the money.

The strike price is agreed on by both parties in an options contract when the option is created. It plays a central role in determining the option premium – the price charged to the investor by the asset owner in the case of a call option, or by the investor to the asset owner in the case of a put option. The more favorable the strike price of an option, the higher the option premium will be.

If the strike price specified in an option is not reached, then the option is out of the money, and the option becomes invalid. In this case, the strike price becomes redundant.

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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.

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