Strike price.
In plain English
Every option contract names a strike price, the price at which the holder may buy the underlying stock in the case of a call, or sell it in the case of a put. It is set when the contract is created and does not change with the market, apart from adjustments for events such as stock splits. The relationship between the strike and the current share price determines whether exercising would produce any value. Strike prices are listed in fixed increments across a range, so a chain shows many contracts on the same stock with the same expiration.
01Why it matters
The strike is the reference point for everything else about an option, since whether it has value at expiration depends entirely on where the share price sits relative to it.
02The math, step by step
A call with a $50 strike lets the holder buy shares at $50 regardless of the market price. If the stock is at $58 at expiration, exercising captures $8 per share of value before the cost of the contract itself.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
The premium is what the option itself costs to buy and it changes constantly. The strike is the fixed exercise price written into the contract and it does not move. Confusing them makes a cheap contract with a distant strike look like a bargain when it is not.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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