GLOSSARY // Options
Strike Price
The strike price is the fixed price at which an option contract converts into stock: the price a call holder pays to buy shares, or a put holder receives to sell them. It is set when the contract is listed and never changes, no matter where the stock trades.
Where the stock sits relative to the strike defines everything about the option's character. A 45 call on a $50 stock has $5.00 of intrinsic value; a 55 call on the same stock is pure time value and expires worthless unless the stock climbs past 55. Exchanges list strikes in fixed increments — often $0.50 or $1 on liquid names, $5 on higher-priced ones.
A stock trades at $50. The 45 call is in the money by $5.00, the 50 call sits at the money, and the 55 call is out of the money. Buy the 55 call for $0.80 and the stock must clear $55.80 by expiration just to break even — an 11.6% move.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.