How Strike Price Affect the Premium in Options Market

Strike price is a term which is related to options in derivatives market. It refers to the price at which a specific derivative contract can be exercised. A strike price is generally used in context of either stock or index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security or shares can be bought on or before the expiration date, while for put options the strike price is the price at which security or shares can be sold on or before the expiration date.

Strike prices are one of the key factors which affect the premium of the options, which represents the market value of an options contract. Other factors which have an effect on the premium of the options include the time until expiration, the volatility of the underlying security and prevailing interest rates.

The strike price determines whether or not an option has any intrinsic value. In case of call options when the underlying security’s price is higher than the strike price a call option is said to be in the money, while in case of put options if the underlying security’s price is less than the strike price, a put option is said to be in the money, which implies that option holder is in profit.

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