Finance: What is a Strike Price?

What is a strike price? Strike prices are used in conjunction with options. Calls and puts give investors the right to buy or sell stocks at predetermined prices called strike prices. If the investor owns a call option, they can buy the stock at the strike price; with a put option, they can sell the stock at the strike price.

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Transcript

00:33

share of Amazon stock in 2015 when the stock was around 400 bucks a share the

00:39

option lasts as long as you work at the company in good standing or after 10

00:43

years have passed which ever ends first well one day you decide you want another job [Woman signing a contract]

00:48

your contract says that if you're no longer an employee with the company then

00:52

you have 90 days in which to either buy out your option that is to buy the

00:57

option and then own the stock or just forfeit the option [Woman underlining words on a contract]

01:01

well since Amazon is now at a thousand bucks a share you obviously don't want

01:05

to forfeit the option to buy that share of stock for 400 bucks but you note that

01:10

your many friends who joined apcray.com at a high price a high strike price which

01:16

creators know they're stock while they're doing a lot of option forfeiting

01:21

that is their options ended up being worthless so you've got a lot to think [Man holding out a bag of dog poo]

01:24

about here this is Amazon not apcray so you want to buy out your option so

01:28

what happens well you were granted your own options at the price Amazon stock [Amazon box falls off shelf]

01:34

was trading at the day you joined the company it was 400 bucks a share so

01:38

that's a strike price that $400 is the price you pay to buy a share of stock at

01:44

some point there in the future that strike price has nothing to do with [Protestors holding signs outside an Amazon building]

01:48

unions not working got it? all right well in order to buy that stock it's

01:53

currently trading in a thousand bucks a share

01:55

you pay Amazon 400 bucks and that buys out your option you then own the stock [Man writing a check to Amazon for 400 dollars]

02:02

that's it Amazon cancel your option then they give

02:05

you a share of actual stock which you now own for as long as you want to own [Man delivering an Amazon box]

02:09

it you can sell it immediately and make a

02:11

$600 a share profit that's a thousand bucks a share it's trading at now minus the

02:16

$400 strike price you just paid to buy out that option got it or you can hold [Grandparent bribing grand-daughter for amazon stock]

02:21

onto those shares and you know use it to bribe your grandchildren one day it's

02:26

worth like a million dollars a share