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What is a strike price?

What is a strike price?

A strike price names the price of the underlying security in options or derivative contract at which the underlying security will trade at settlement if it is exercised.

In a call option, for example, the option would name a strike price, and if the current market price of the underlying security was more than the strike price, an investor who held the call contract would invoke his right to purchase the stock from the issuer/seller of the option at the strike price, which, remember is lower than the prevailing market price in this example, and the investor can turn around and sell it in the market at or near its most recent, and higher, price, for a profit.

Strike prices cannot be changed after the contract is sold. Strike prices also are features of forex contracts and other derivatives and is generally an amount which is to be exchanged later, which is agreed upon at the time of the contract.

Keywords: #Forex, derivatives, strike price, calls, puts, options,