In options, a key variable in a derivatives contract between two parties is known as the strike price, or exercise price. Where the delivery of the underlying instrument is required by the contract, the trade will be at the strike price, regardless of the spot price (market price) of the underlying instrument at that time.
Definition of Strike Price
The strike price is the fixed price at which the owner of an option is able to purchase the underlying security or commodity, in the case of a call, or sell, it in the case of a put. When the option is exercised it is that price at which the stock will be bought or sold.
Usually the strike price is referred to as the exercise price.
For instance, an IBM May 50 Call has a strike/exercise price of $50 a share. When the option is exercised 100 shares of IBM stock for $50 a share will be bought (Call option) by the owner of the option.
