Strike Price

The strike price, in the context of options trading, refers to the predetermined price at which the holder of an option can buy or sell the underlying asset. In other words, it is the price at which you, as an option contract holder, can exercise your right to trade the specified asset before the expiry of the option.

There are two main types of options, call options and put options. If you hold a call option, the strike price is the price at which you can purchase the underlying asset. On the other hand, if you hold a put option, the strike price is the price at which you can sell the underlying asset. 

To illustrate, let’s say you hold a call option for a stock at a strike price of ₹50. This means you have the right to buy that particular stock for ₹50 per share, regardless of the current market price. If the stock price increases to ₹60, you have the potential to make a profit by exercising your option to buy the stock at the lower strike price.

Understanding the strike price is essential as it is one of the key factors that determine the value of an option, along with the time until expiry and the volatility of the underlying asset.

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