Lesson Overview

Option Strike Price

Options strike price is the exact price at which you agreed to buy or sell the underlying stock in the future. Another name for the strike price is the exercise price of the option contract but again don't get too confused on the terminology as long as you understand what it means. A quick tip I always use to remember the strike price is that it's the point at which I "strike a deal" on the stock. During the video we'll look at some different strike prices for AAPL stock.

Show Video Transcript +

In this video tutorial, we are going to cover an option strike price. It's very, very easy and as always, we’ll get right into it here. An option strike price, going back to our RB’s combo coupon example here that we have, the strike price is simply the exact price that you agree on to buy or sell the underlying stock.

In this coupon example here, you'll see that the coupon is for $3.99. That's the exact price that RB’s has agreed on to sell this roast beef combo to you at any time in the future before expiration. You can use this coupon at any time to buy a roast beef combo for $3.99.

And that $3.99 is that strike price. It’s that place or that price that you agree on, that you come together and say, “Okay, this is going to be the price that we’re going to make this agreement.” And as always, that's the same thing with options. It’s just the price that you agree on that you want to choose.

The quick tip here is that you want to strike a deal. It’s that area that you’re going to strike a deal on with the price. If we look at an example of Apple stock, you'll see that we have the December options here which have 32 days to go.

And usually, on your broker platform, all the strike prices are going to be listed down the middle of any options trading table. You’ll usually have the calls on the left side, and then you will have the puts on the right side of the screen typically.

The strike price is just the price down the middle of the option pricing table here that you can agree on to buy these options.

There’s not one strike price for every option, there are multiple, multiple levels and then there’s going to be multiple buyers and multiple sellers for different prices. You could move up or down the strike prices depending on your outlook and thoughts for the market going forward.

Again, taking this Apple stock example, another name for the strike price is the exercise price. It’s where you take that coupon, which RB’s coupon and you exercise your right to buy or sell the stock.

Remember that call options always pay the strike price because, in a call option, you have the right, but not the obligation to buy stock, and then with put options, you receive the strike price.

With a put option, you have right, but not the obligation to sell the stock at the specific strike price. You can see that on our Apple diagram here with Apple trading at $379.26, we could be trading calls or puts at $370, $360, $350.

And this visually shows you the up and down axis here of the options for Apple, where those different strike prices are. If we go back to our previous slide, you can see that you can go all the way up to a 400 strike price level which would be all the way up here.

You can move up or down depending on your outlook for the market. But that's all that strike prices are. It’s just the area that you agree on. It’s that one point that you guys come together as an option buyer and an option seller and agree to strike a deal.

As always, thank you so much for watching this video. If you like this video, please share the video right below here with all of your friends, family, and colleagues on your favorite social network.

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