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The Strike Price

The strike price is the predetermined price at which the buyer of an option can buy (call) or sell (put) the underlying asset, such as a stock.

For example, if a call option has a strike price of $50, it gives the holder the right to buy the stock at $50, even if the stock is trading at $60.

It's essentially the locked-in price that determines whether the option will be profitable or not (i.e., in-the-money or out-of-the-money).

Check Your Understanding

What does the strike price determine?