Strike Price in Options - PowerPoint PPT Presentation

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Strike Price in Options

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In the derivative market strike price is a common terminology and the meaning of strike price is known to all the investors. T he strike price is the future set price at which the derivative contract is to be traded on a pre-decided date. There are two types of options contracts mainly call and put options. In the call options, the strike price is referred to the cost at which the asset is bought. While for put options, the strike price() is the cost at which the asset is sold. – PowerPoint PPT presentation

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Title: Strike Price in Options


1
Strike price in options
2
Introduction
  • In the derivative market strike price is a common
    terminology and the meaning of strike price is
    known to all the investors. T
  • he strike price is the future set price at which
    the derivative contract is to be traded on a
    pre-decided date.
  • There are two types of options contracts mainly
    call and put options. In the call options, the
    strike price is referred to the cost at which the
    asset is bought. While for put options, the
    strike price is the cost at which the asset is
    sold.

3
Factors to choose your strike price
  • Risk Tolerance Risk tolerance is one of the
    important parameters which you should consider
    while you set the strike price. Your risk
    appetite will decide the strike price for you.
    The different types of options have different
    risk levels. With different risk tolerance, you
    can decide the type of options contract which are
    ITM, ATM, and OTM. In the money, option contract
    goes well with option buyer whereas out of money
    goes well with option seller.
  • Risk Reward Payoff This is correlated to the
    risk tolerance parameter. If you are a risk savvy
    investor you can opt for an In the Money or At
    the money type of contract. Investors can opt
    for an OTM contract if the risk tolerance is
    high.
  • Implied Volatility Every stock option is
    associated with different volatility levels. This
    parameter is influenced by various factors like
    fluctuations in the industry, changes in
    government policies, and other global factors,
    etc.
  • Volume/Liquidity This is another important
    factor that helps in determining the strike
    price. The liquidity of the underlying asset will
    help you determine the profitability of the
    trade. If the asset has higher liquidity you can
    yield better profits before the expiry date of
    the contract. Lower liquidity does not offer much
    profit when you exit the trade.

4
Conclusion
  • If you are someone interested in the derivative
    market hope this article clears your doubts
    around the strike price concept. The strike price
    is an integral parameter when you enter any type
    of derivative contract. Hence, you must
    understand what is strike price in options and
    how to determine strike price basis various
    factors mentioned above.
  • You should learn about derivatives even more to
    get a hold on the concept and become an active
    trader in the derivative markets.

5
THANK YOU
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