The exercise price, also known as the strike price, is the price at which an option can be bought or sold. When an investor decides to exercise an option, they are purchasing or selling the underlying asset at the exercise price. For instance, if an investor holds a call option with an exercise price of $50 and the underlying stock is currently being traded at $60, the investor can exercise the option and acquire the stock at $50, resulting in a profit of $10 per share.
The exercise price, also referred to as the strike price, represents the price at which an option can be utilised. It is the price at which the holder of an option can either purchase or sell the underlying asset. For instance, if you possess a call option on XYZ stock with an exercise price of $50, you have the right to buy XYZ stock at $50 per share. If the current market price of XYZ stock is $60, you can exercise your option and acquire the stock at the exercise price of $50, resulting in a profit of $10 per share. Similarly, if you own a put option on XYZ stock with an exercise price of $50, you have the right to sell XYZ stock at $50 per share. If the current market price of XYZ stock is $40, you can exercise your option and sell the stock at the exercise price of $50, making a profit of $10 per share. The exercise price plays a crucial role in determining the value of an option. The closer the exercise price is to the current market price of the underlying asset, the higher the value of the option.
An exercise price is the price at which an option can be exercised.
The exercise price is determined by the issuer of the option and is usually based on the current market price of the underlying asset.
The exercise price can be changed only if both parties agree to the change.
If the exercise price is not paid, the option will expire worthless.
The exercise price can be paid in installments only if both parties agree to the installment plan.
If the underlying asset’s price is below the exercise price, the option will expire worthless.
If the underlying asset’s price is above the exercise price, the option can be exercised and the holder can buy the asset at the exercise price.
The exercise price can be negotiated between the parties before the option is issued.
The exercise price and the strike price are the same thing.
Yes, the exercise price can be different for different options on the same underlying asset.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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