strike price

noun

Updated on: 10 Mar 2018

Definition of strike price

: an agreed-upon price at which an option contract can be exercised — called also striking price

Recent Examples of strike price from the Web

The Elephant’s activity could involve buying back 262,500 February VIX puts with a strike price of 12, selling 262,500 15 calls, and buying back 525,000 25 calls in order to close out the existing position.

— joanna ossinger, Bloomberg.com, "Big Volatility Players May Be on the Loose as VIX Tops 17," 2 Feb. 2018
The most-active VIX options on Monday were at strike prices like 15, 22, 18 and 16.

— joanna ossinger, Bloomberg.com, "Stock Rout Shatters Years of Calm in Markets," 5 Feb. 2018
Investors can buy cheap out-of-the-money options with a strike price way below where the security currently trades.

— laurence fletcher, WSJ, "A Decade After Crisis, Investors Have Stopped Hunting for Black Swans," 5 Sep. 2017
At the time, the strike price was slightly above where Bank of America’s shares were trading.

— rachel louise ensign, WSJ, "It’s Official: Warren Buffett Made About $13 Billion on Bank of America Deal," 29 Aug. 2017
The metal fell, striking Price and severely injuring him.

— rick romell, Milwaukee Journal Sentinel, "Worker at south side plant dies after being crushed when overhead crane fails," 18 Oct. 2017
The calls with a strike price of 15 were bought at $1.45 each.

— gunjan banerji, WSJ, "Investor Makes Mammoth VIX Bet That Could Pay Out $265 Million," 24 July 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'strike price.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of strike price

1972

Financial Definition of STRIKE PRICE

strike price

noun

What It Is

The strike price is the specified price at which an option contract can be exercised.

How It Works

Strike prices are fixed in the option contract. For call options, the option holder has the right to purchase the underlying stock at that strike price up to the expiration date. For put options, the strike price is the price at which the underlying stock can be sold.

For example, an investor purchases a call option contract on shares of ABC Company at a $5 strike price. Over the life of the option contract, the holder has the right to exercise the option and purchase 100 shares of ABC for $500. If the price of ABC shares rises to $10, the option holder can lock in a $500 profit by exercising the option because it allows him to buy shares at $5 and sell them for $10 in the open market.

Why It Matters

The strike price is one of the most important elements of options pricing. At the expiration date, the difference between the stock’s market price and the option's strike price represents the amount of profit gained by exercising the option.

Source: Investing Answers