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What Is A Strike
Price?
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Does
the strike price determine what my option is
really worth?
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| A strike price is the
price at which the underlying contract can be
exercised.
Let's say you purchased
a July 400 call option on corn. This is a call option
with a $4 strike price. It gives you the right, but not
the obligation, to purchase a contract of corn at $4 at
any time before expiration.
It doesn't matter what the price of the commodity has
moved to when, or if, you would decide to exercise your
option, you still have the right to purchase at that
strike price.
The strike price is set
in various increments, depending on which commodity you
are trading, and generally has levels below, at and
above the current trading price of the commodity itself. The
strike price does affect the price of your option,
because it affects the delta of the option, but it is
not the only thing that does. There are other factors
including affecting the value of your option including
volatility, time to expiration and more. |
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