Business, Legal & Accounting Glossary
The specified price on an option contract at which the contract may be exercised, whereby a call option buyer can buy the underlier or a put option buyer can sell the underlier. The buyer’s profit from exercising the option is the amount by which the spot price exceeds the exercise price (in the case of a call), or the amount by which the exercise price exceeds the spot price (in the case of a put). In general, the smaller the difference between spot and exercise price, the higher the option premium.
The exercise price, or strike price, is the price at which the owner can exercise an option. A call entitles the holder to buy the underlying asset at the exercise price, and a put entitles the owner to sell the underlying at the exercise price. If the market price is significantly above the exercise price, the option can be exercised at a profit. If the market price is significantly below the exercise price the investor must consider the impact of transaction costs in determining whether it is worthwhile to exercise the option. The exchange decides the exercise price increment for a given option series based on the price of the asset as well as the actual choices of exercise price available for that asset. For example, on a stock trading at $52.50, the exchange may initiate a new option series at one exercise price above and one below, say $50 and $55. If the stock price passes $55, options at the $60 exercise price will be offered.
You may want to make sure that you know when the exercise price will come into effect so that you are prepared.
After some deliberation, we set the exercise price and waited to see how the chips would fall in this tumultuous market.
A type of price which is specifically based on an option contract at which it may be activated in the presence of a buyer through call option so as to purchase the underlier is known as exercise price.
strike price
stock swap
subscription warrant
graduated call writing
reload option
indexed stock options
option schedule
aggregate exercise price
exercise settlement amount
statutory stock option
effective call price
nominal exercise price
adjusted exercise price
low exercise price option (LEPO)
aggregate exercise price
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This glossary post was last updated: 30th October, 2021 | 0 Views.