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What is a strike price? Why do you need to know this definition? The MoneySense Glossary is your resource for learning and understanding financial terms.
The strike price of an option contract is the price at which the holder can buy or sell the underlying security. Call options allow you to buy the security at the strike price, regardless of the current market price. For instance, if a stock is trading at $50, the owner of a call with a $40 strike price can purchase the stock for $40. The strike price of a put option is the price at which you can sell the security by exercising the option.
Example: “After Mohammed’s shares in the company rose from $80 to $100, he bought a put option with an $80 strike price, giving him the option to sell at $80 and protect his gain should the price decline.”
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