Strike

The strike price of an option is the predetermined price at which the option holder can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset. This price is fixed when the option contract is created and is a fixed parameter.

Examples

Call Option: If you hold a call option with a strike price of $50, and the underlying asset's price at expiration is $60, you can exercise the option to buy the asset at $50, resulting in a profit of $10 per share. If the underlying price is below $50, the option will expire worthless, as buying the asset directly in the market is cheaper. However, you can still exercise the option at strike price even if this doesn’t make sense.

Put Option: If you hold a put option with a strike price of $50, and the underlying asset's price at expiration is $40, you can exercise the option to sell the asset at $50, making a profit of $10 per share. If the underlying price is above $50, the option will expire worthless, as selling the asset directly in the market is more profitable.

These examples illustrate the relationship between the strike price and the underlying asset's market price at expiration, determining whether an option is exercised or allowed to expire worthless.