| Strike Price |
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| CATEGORIES ABOUT STRIKE PRICE | |
| options | |
| derivatives | |
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Definition - The fixed price at which the owner of an option can purchase, in the case of a call, or sell, in the case of a put, the underlying security or commodity. MONEYNESS Moneyness is a term describing the relationship between the strike price of an option and the current trading price of its underlying security. Where settlement is financial, the difference between the strike price and the spot price will determine the value, or " Moneyness ", of the contract. In options trading, terms such as in-the-money, at-the-money and out-of-the-money describe the moneyness of options. Mathematical Formulae A Call Option has positive monetary value when the underlying has a spot price (S) ''above'' the strike price ('''K'''). Since the option will not be exercised unless it is " In-the-money ", the payoff for a call option is : or formally, : where : A Put Option has positive monetary value when the underlying has a spot price ''below'' the strike price; it is " Out-the-money " otherwise, and will not be exercised. The payoff is therefore : or : For a Digital Option payoff is , where is the Indicator Function . SEE ALSO REFERENCES |
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