The Strike Price

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The Strike Price

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The strike price is the price of a stock
or other equity specified in options
contracts .

The strike price is the price at which a
contract in options trading will be
delivered should the buyer choose to
execute it.

The strike price will be the price of
satisfaction of the options contract no
matter what the market price, also
called the spot price , is at the time.

Specifically, it is the price at which
owner of options can buy stock in case
of a call option or sell stock in the case
of a put option.

The strike price of an options contract
is also referred to as the exercise price.

When trading options on stocks the
trader carries out the same types of
fundamental and technical analysis
that he would when buying stocks or
selling stocks directly.

He will use Candlestick analysis to
gauge market sentiment and assess a
stock’s margin of safety and intrinsic
stock value in order to have a clear
view of the stock’s eventual value.

Using Candlestick patterns as a guide,
traders in the options markets seek to
anticipate if stocks are likely rise
above the strike price of available
options contracts or are likely to fall
below the strike price.

If the trader anticipates a rise in stock
price above the strike price he will
seek to profit by buying calls on the
stock at given strike price.

If he expects the stock price to fall he
will seek to profit by buying puts.

Buying calls gives the trader the right
to buy stock and buying puts gives the
trader the right to sell stock, in each
case at the strike price specified in the
contract.

In neither case of buying options does
the buyer have an obligation to buy or
sell.

It is the seller of puts or calls who
gains premiums for taking on the risk
of unanticipated, by him, changes in
stock prices.

Options contracts vary length. As the
contract runs its course the contract
will have intrinsic value and time
value.

The intrinsic value of the stock is the
difference between the current market
price or spot price and the strike price
of the contract.

The time value is what the market
consensus assigns a stock based upon
expected price movement between the
current date and the contract
expiration date.

As the time to contract expiration
becomes less so does the time value of
the contract.

Finding profitable investments in the
options markets takes the same sort of
attention to fundamental analysis and
technical analysis as does buying or
selling stocks directly.

To the degree that an options contract
has less time to run the fundamentals
become less important.

Technical analysis tools such as
Candlestick pattern formations ,
however, are always useful as they can
spot short term changes in market
sentiment.

They always have the potential when
coupled with Candlestick trading
tactics to lead to short term profits in
trading options on stocks or other
equities.

The Strike Price

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The Strike Price