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This chapter is from the book

This chapter is from the book

Strike Price

The strike price is the price at which the buyer of a call option has the right to purchase the futures contract, or the buyer of a put option has the right to sell a futures contract. This is also referred to as the exercise price.

The strike price is one of the biggest factors in determining both the extrinsic and intrinsic value of an option. Obviously, the closer the strike price is to the underlying futures contract the more valuable the option will be, even if there is no intrinsic value. This makes sense, because the closer the strike price is to the underlying market the better the odds are that the option will expire in-the-money and the higher the demand will be for the contract.

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