
In
finance
Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
, the strike price (or exercise price) of an
option is a fixed price at which the owner of the option can buy (in the case of a
call
Call or Calls may refer to:
Arts, entertainment, and media Games
* Call (poker), a bet matching an opponent's
* Call, in the game of contract bridge, a bid, pass, double, or redouble in the bidding stage
Music and dance
* Call (band), from L ...
), or sell (in the case of a
put), the underlying
security
Security is protection from, or resilience against, potential harm (or other unwanted coercion). Beneficiaries (technically referents) of security may be persons and social groups, objects and institutions, ecosystems, or any other entity or ...
or commodity. The strike price may be set by reference to the
spot price
In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after t ...
, which is the market price of the underlying security or commodity on the day an option is taken out. Alternatively, the strike price may be fixed at a discount or premium.
The strike price is a key variable in a
derivatives contract between two parties. Where the contract requires delivery of the
underlying
In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements:
# an item (the "underlier") that can or must be bou ...
instrument, the trade will be at the strike price, regardless of the market price of the underlying instrument at that time.
Moneyness
Moneyness
In finance, moneyness is the relative position of the current price (or future price) of an underlying asset (e.g., a stock) with respect to the strike price of a derivative, most commonly a call option or a put option. Moneyness is firstly a th ...
is the value of a financial contract if the contract settlement is financial. More specifically, it is the difference between the strike price of the option and the current trading price of its underlying security.
In options trading, terms such as ''in-the-money'', ''at-the-money'' and ''out-of-the-money'' describe the moneyness of options.
* A
call option
In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call Option (finance), option to exchange a Security (finance), security at a set price. The buyer of the call option has the righ ...
is in-the-money if the strike price is below the market price of the underlying stock.
* A
put option
In finance, a put or put option is a derivative instrument in financial markets that gives the holder (i.e. the purchaser of the put option) the right to sell an asset (the ''underlying''), at a specified price (the ''strike''), by (or on) a ...
is in-the-money if the strike price is above the market price of the underlying stock.
* A call or put option is at-the-money if the stock price and the exercise price are the same (or close).
* A call option is out-of-the-money if the strike price is above the market price of the underlying stock.
* A put option is out-of-the-money if the strike price is below the market price of the underlying stock.
Mathematical formula
A
call option
In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call Option (finance), option to exchange a Security (finance), security at a set price. The buyer of the call option has the righ ...
has positive monetary value at expiration when the underlying has a spot price (S) ''above'' the strike price (K). Since the option will not be exercised unless it is in-the-money, the payoff for a call option is
: