What is a "strike price" in options trading?

What is a "strike price" in options trading?

• A. The price at which an investor can buy an underlying asset
• B. The price at which the holder of an option can buy or sell the underlying asset
• C. The market price of the underlying asset
• D. The price at which an option can be traded

Answer: (B)

In options trading, the strike price is a critical term that refers to the specific price at which the holder of an option is entitled to buy or sell the underlying asset. This means that if a trader holds a call option, they have the right to purchase the underlying asset at the strike price, while if they hold a put option, they have the right to sell the underlying asset at that price. Understanding the strike price is essential for determining the profitability of an options position. For instance, if the market price of the underlying asset is above the strike price for a call option, the option is considered "in the money" and can be exercised for a profit. Conversely, if the market price is below the strike price for a put option, it is also "in the money" and has intrinsic value. The other terms listed, while related to options trading, do not accurately define the strike price. The price at which an investor can buy an underlying asset pertains specifically to call options but does not encompass both call and put options. The market price of the underlying asset reflects its current trading value, while the price at which an option can be traded refers to its market price and does not specifically denote the rights conferred by the options contract. Therefore

In options trading, the strike price is a critical term that refers to the specific price at which the holder of an option is entitled to buy or sell the underlying asset. This means that if a trader holds a call option, they have the right to purchase the underlying asset at the strike price, while if they hold a put option, they have the right to sell the underlying asset at that price.

Understanding the strike price is essential for determining the profitability of an options position. For instance, if the market price of the underlying asset is above the strike price for a call option, the option is considered "in the money" and can be exercised for a profit. Conversely, if the market price is below the strike price for a put option, it is also "in the money" and has intrinsic value.

The other terms listed, while related to options trading, do not accurately define the strike price. The price at which an investor can buy an underlying asset pertains specifically to call options but does not encompass both call and put options. The market price of the underlying asset reflects its current trading value, while the price at which an option can be traded refers to its market price and does not specifically denote the rights conferred by the options contract. Therefore