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Finance Glossary

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Exercise Price

Definition:

It's not about how much you pay to get in to your gym. It's the strike price of the stock option you own. So if you buy an option to buy a stock at a specific price, that specific price is the exercise price (a.k.a. the strike price). 

Example

Let's say you joined GerbilDating.com in its infancy. You were granted 100,000 options at a $2 strike price. It's now publicly traded on NASDAQ. The stock just hit $40. You can exercise your options, paying $2 to GerbilDating.com to buy out that share of stock, and then sell it for $40 through your broker to net $38 in gain per share. The $2 you pay to buy the stock as you exercise the option is the exercise price.