Exercise Price

The exercise price, or strike price, is the price at which the owner can exercise an option. The buyer's profit from exercising the option is the amount by which the spot price exceeds the exercise price (in the case of a call), or the amount by which the exercise price exceeds the spot price (in the case of a put). Typically, the smaller the difference between spot and exercise price, the higher the option premium. When the market price is significantly below the exercise price the investor must consider the impact of transaction costs in determining whether it is worthwhile to exercise the option.