Exercise Price

The exercise price (or strike price) is the fixed price specified in an option contract at which the holder can buy (for calls) or sell (for puts) the underlying asset upon exercise. It is set when the contract is created and remains constant throughout the option's life. The relationship between the exercise price and the current market price determines whether an option is in the money, at the money, or out of the money. Options with exercise prices close to the current stock price are most actively traded and have the highest time value. The exercise price is a key input in all option pricing models and directly affects the option's intrinsic value. Options exchanges list multiple exercise prices for each expiration, typically at standardized intervals (e.g., $1, $2.50, or $5 apart depending on the stock price).