Strike Price

The strike price is the fixed price written into an options contract — the price at which the underlying stock can be bought (for a call option) or sold (for a put option). It's set when the contract is created and never changes, unlike the premium, which is the market-determined cost of the option and fluctuates constantly. For a call, a stock trading above the strike price means the option has real value if exercised; for a put, it's the reverse — the stock trading below the strike is what gives it value. Every options trade comes down to three key numbers: the strike price and expiration date, which are fixed terms set when the contract is created, and the premium, the market price paid or collected to buy or sell that contract, which keeps changing as long as the option trades. Traders choosing a strike are really choosing the terms of a potential future trade: the exact price they'd buy or sell the stock at if the option is ever exercised or assigned.