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> Blog > Insights > Strike Price: Explained

You’re buying a share of a company when you buy stocks. You’re hoping that the company will do well in the future and that your stock will go up in value. You have the option of selling the stock at a higher price, making a profit if it does. The price of a stock you buy or sell is called the strike price.

The strike price is the price when you can buy or sell a stock or option contract. The market sets the strike price, and it changes depending on the price at which people are willing to buy or sell it.

How Strike Prices Work

When you buy or sell options, the strike price is the price at which the transaction takes place. The strike price is also called the striking price or exercise price. The market sets strike prices, representing the underlying asset’s price at the time of purchase or sale.

For example, let’s say you buy a call option on XYZ stock with a strike price of $50. In this situation, you have the right, but not the obligation, to buy 100 shares of XYZ stock at $10 per share.

If the stock price rises above $10, you can exercise your option and buy the shares for $10. You would then sell the shares on the open market for the current market price.

If the stock price falls below $10, you can choose not to exercise your option. The option will expire worthlessly, and you will lose the premium that you paid for the option.

Difference Between Strike Price and Stock Price

When trading options, you need to understand the difference between the strike and stock prices. The strike price is when you can buy or sell the underlying asset, while the stock price is the asset’s current market price.

The options exchange sets the strike price when the option is created. The strike price is the price available for the option holder to buy or sell an underlying asset. It can be lower or higher than the stock price.

The stock price is the current market price of the underlying asset. The stock price is the price you’ll pay for an underlying asset.

Trading Binary Options

Trading binary options are forms of investment where you predict the future price of an asset. You can anticipate a higher or lower price. If your prediction is correct, you will earn a pay-out. This type of trading is simple to understand and can be an effective way to generate profits.

The strike price is the price when you enter a binary options trade. It is the price you hope the asset will reach before the trade expires. Your pay-out depends on your initial investment and the pay-out percentage offered by the broker if your prediction is correct. However, if your prediction is incorrect, you will lose your investment.

You need to choose your strike price carefully since it can impact your chances of success. If the asset you are trading is volatile, you may want to select a strike price closer to the current market price. You will have a better chance of the asset reaching the strike price before the trade expires in this situation.

However, if the asset is not volatile, you may want to choose a strike price that is further away from the current market price. This will give you a better chance of the asset not reaching the strike price before the trade expires.

For example, if you anticipate that a particular asset will reach $15 before the trade expires, you will choose a strike price of $15. If the trade expires and the asset’s price is at or above $15, you will earn a pay-out based on your initial investment. If the asset’s price falls below $15, you will lose your investment.

Things to Consider When it Comes to Strike Prices

When it comes to strike prices, there are a few things that you need to take into consideration. The first is the strike price of a stock. If the strike price is higher than the current price, it is considered out of the money. On the other hand, it is considered in the money if the current price is higher than the strike price.

The second thing to consider is the expiration date. The expiration date is the date that the options contract expires. If the stock price is above the strike price on the expiration date, then you will make a profit. If the stock price is below the strike price on the expiration date, you will lose your investment.

The third thing to consider is the premium. The premium is the amount that you pay for the options contract. The premium is paid upfront when you purchase the contract.

It is essential to understand all the factors when trading binary options to make informed decisions and maximize your chances for success. To safeguard your investments, you need to look for a trusted binary trading broker, such as Trusted Options.

For further enquiries on trading binary options, fill out a form today.

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