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Strike price (or exercise price) of an option

In finance, the strike price (or exercise price) of an option is the fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. The strike price may be set by reference to the spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium.

The strike price is a key variable in a derivatives contract between two parties. Where the contract requires delivery of the underlying instrument, the trade will be at the strike price, regardless of the market price of the underlying instrument at that time.

For example, an IBM may call a strike price of $50 a share. When the option is exercised, the owner of the option will buy 100 shares of IBM stock for $50 per share.

Source: wikipedia

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