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By MoneySense Editors on June 17, 2022

What is a strike price?

By MoneySense Editors on June 17, 2022

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.

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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.

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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.”

Read more on strike prices:

What you need to know about options
If the recent GameStop drama has piqued your interest, this guide gives you the basics on what options are, how they work, the potential rewards—and significant risks.
The income illusion
With interest rates at all-time lows, investors are desperate for yield. But focusing only on income can often lead to a bad outcome.
Can you protect your portfolio from drawdowns?
If your portfolio loses 1% today and gains 1% tomorrow, are you back to even? Not quite, but you’re awfully close. You actually need a gain of 1.01% to get back to where you started. While that difference seems trivial, it gets magnified when the ups and down of your portfolio get larger.

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