Where have you heard about strike prices?

What is a strike price?

Also known as the exercise price, the strike price is the pre-determined price at which the holder of an option can buy or sell the underlying asset when the option is exercised.

You hear about strike prices when you hear about options because the strike price is attached to the option. It refers to the derivative's underlying asset.

What you need to know about strike prices.

For call options, the higher the strike price, the cheaper the option. For put options, the higher the strike price, the more expensive the option.

When working out the profit in an unexpired option, it's essential to compare the strike price against the current market price to work out if an option is in or out of the money. In other words, the strike price can help you decide whether to exercise your option or not.

For example: If a put option strike price is 200 and the market price is 190, then exercising of this option is worthless (simply subtract the market price from the strike price). But if the strike price is 200 and the market price is 220, then the put option is 'in-the market', and worthy of exercising.

Find out more about strike prices.

See how strike prices are a key part of options trading.