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Strike Price
June 07 , 2012

Strike price is used in the context of options. In options contracts, the price at which the transaction may happen (at the discretion of the buyer of the option) at a future date is decided upfront. This price decided is called the strike price. While it is generally related to the current price of the product being traded, it can be higher or lower than current price.

In general, strike price is higher than current price if prices are expected to rise in the interim. Also, for a similar contract, if the strike price is higher, the cost of call option increases, while the cost of a put option decreases.

For instance, say the prevailing price of an Infosys share is Rs 2000. If I take an option to buy Infosys share at Rs1500 three months from today, the strike price of the option (in this case call option) is Rs1500.

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