Unlike strike price, the market price of an option does change during the option's life. Even when the stock would be trading at 100 or at 15 or at 1 dollar, the price for which you buy when you exercise this option is 20 (of course it does not make sense for you to exercise the option if the stock is at 15, as the option would be out of the money, and you better buy the stock in the stock market for 15 rather than for 20 using your option). If you exercise your Microsoft option, you will buy Microsoft stock for the strike price, i.e. Strike price is fixed throughout the whole life of an option. Microsoft stock can go up to 100 or down to zero, but the strike price of this option you have will always remain at 20 dollars. Whatever happens in the markets, the strike price of this option will always be 20. This is the characteristic of the option. It is the price that will be used if the owner of the option exercises the option.įor example, you may own a call option on Microsoft stock with the strike price of 20 dollars.

Option's strike price is fixed and defined for every option. Market price of the option's underlying stock (or other underlying asset).

Market price of the option (also called option premium).

All three are prices, but their meanings are very different. In order to fully understand the basic principles of options, you must be sure to know the differences between the three frequently used terms and key parameters for every option.

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