In option trading, the strike price (also known as the exercise price) is the predetermined price at which the underlying asset can be bought or sold when the option is exercised.
*For Call Options:*
- The strike price is the price at which the buyer of the call option can purchase the underlying asset.
- If the market price of the underlying asset is above the strike price, the call option is said to be "in-the-money" (ITM).
- If the market price is below the strike price, the call option is said to be "out-of-the-money" (OTM).
*For Put Options:*
- The strike price is the price at which the buyer of the put option can sell the underlying asset.
- If the market price of the underlying asset is below the strike price, the put option is said to be "in-the-money" (ITM).
- If the market price is above the strike price, the put option is said to be "out-of-the-money" (OTM).
*Example:*
Suppose you buy a call option to purchase 100 shares of XYZ stock with a strike price of ₹500. If the market price of XYZ stock rises to ₹550, you can exercise your call option and buy 100 shares at ₹500, then sell them at ₹550, making a profit of ₹50 per share.
The strike price is a critical component of option trading, as it determines the profitability of the trade.
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