Business, Legal & Accounting Glossary
The strike price of an option is the price at which the owner of the option is entitled to exercise his option to buy or sell the underlying security or asset. The strike price of a call option represents the price at which the underlying security or asset can be purchased by exercising such option prior to its expiration. On the other hand, the strike price of a put option represents the price at which the underlying security or asset can be sold by exercising such option prior to its expiration. The strike price is also called the exercise price. The strike price determines the intrinsic value of an option. The premium of an option will vary significantly depending on the strike price. A strike price is typically set at regular intervals around the current market price.
The strike price, sometimes called the exercise price, is the price at which a buyer of an option contract, either a call or a put, will purchase or sell shares of the underlying security if he or she chooses to exercise the option.
Remember, an option gives the owner the right, but not the obligation, to buy something from the owner at an agreed-upon price. This agreed-upon price is the strike or exercise price. At the time of purchasing the option, this price is set.
In the following table, various call options that were available for Apple back in 2007 are listed. The strike prices for each have been highlighted. Note that as the strike price increases, the purchase price (the “ask”) decreases as the strike price increases.
| Strike Price | Symbol | Last Price | Bid | Ask | Open Interest |
| July 2007 Expiry | |||||
| $85 | QAAGQ | $11.80 | $11.60 | $11.70 | 18,752 |
| $90 | QAAGR | $8.70 | $8.60 | $8.70 | 16,789 |
| $95 | QAAGS | $6.30 | $6.20 | $6.30 | 21,861 |
| October 2007 Expiry | |||||
| $85 | QAAJQ | $14.30 | $14.30 | $14.50 | 881 |
| $90 | QAAJR | $11.30 | $11.50 | $11.70 | 2,237 |
| $95 | QAAJS | $9.40 | $9.10 | $9.30 | 1,579 |
You’ll have noticed something else, too. The strike prices vary by a set dollar amount. Normally, for stocks trading under $25 per share, the steps will be $2.50. For stocks trading above $25, the increments are $5. For those trading above $200, steps of $10 or larger are acceptable.
Note that the strike price to be paid per share in the contract and the contract is for 100 shares. So what is actually paid is $9,000 if you exercise the $90 call option QAAJR.
An option is said to be “in the money” if the strike price is below (for a call) or above (for a put) the current trading price of the underlying security. In the opposite situation, the option is said to be “out of the money.” Those that are in the money could be exercised by the holder if the person wants to buy or sell the stock, while when it is out of the money it would not make sense to exercise it.
However, don’t get too complacent if you are involved in an option contract that is out of the money, as people do weird things.
Exercise Price
Option
Call
Put
Underlying security
Expiration
In the money
Out of the money
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This glossary post was last updated: 28th November, 2021 | 0 Views.