The Base price (strike price) is one of the essential components of any option and sometimes determines the probability of success of an option trade. Option traders can choose between numerous different strike prices.
In this article you will learn what the strike price of an option is and what role it plays in relation to the Exercise of option plays.
What is the strike price of an option?
The strike price of an option - also known as the exercise price or strike - is the price of the underlying asset at which the buyer of an option (in the event of the option being exercised) can buy (call option) or sell (put option) the underlying asset. While the option buyer has a right of choice, the option seller is obliged to meet the option buyer's demand (in the event that the option is exercised).
American Options vs European Options
The right to Exercise of option can be exercised by the option buyer either during the entire term of the option or only on the expiration date, depending on the Exercise style of the option.
"American Options" can be exercised during the entire term, "European Options" only at the expiration date. (The exercise style has nothing to do with the trading location of the option and can be looked up in the contract details. American options typically include equity and futures options; index options are typically European in nature).
The exercise style of an option can be found in the contract details (double click on any strike price)
Exercise of option
If an option is exercised until the Expiration date held, the option is exercised or expires worthless, depending on the strike price. If an option expires in the money, it is automatically exercised by the clearing house. If, on the other hand, the option is at-the-money or out-of-the-money, it expires worthless.
If you want to exercise a purchased option (American type) during the term, you can do it in the Trader Workstation under the menu item "Trade - Option Exercise".
Purchased options (American type) can be exercised via the Trader workstation during the term of the option