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What is Spot Price and Strike Price

 

What is Spot Price and Strike Price

Most of the traders and investors get confused between the Spot price and Strike price. In this article we will discuss about the spot price and strike price.

What is Strike price?

In an option contract, the strike price also known as exercise price is the price of an option at which the owner of the option can buy (CE) or sell (PE) the underlying security. Options are the derivative contract that grant their buyers the right, but not the obligation, to buy or sell an underlying asset at a particular price.

Strike price have apposite impact on option price. When a strike price is high, the call options is price is low and the put option price is high. Likewise, when the strike price is low, the call option price is high and the put option price is low.

For example - Suppose an investor wants to buy a call option for a stock trading at Rs.3000 and is available at a strike price of Rs.2500. Then the seller believes that the stock price will go down in the future so to avoid the major losses he wants to sell the stock at a strike price of Rs.2500.

What is Spot price?

The meaning of the spot price is very easy and simple let’s understand the spot price definition.
Spot price is the current market price of an underlying assets, commodity, currency, or any other financial security available to be bought/sold immediately.

For example- Suppose that you want to buy the TCS company shares. The current market price of the TCS is Rs.1000. This is what known as the spot price. To buy one share of TCS, you would have to pay Rs.1000. And since the spot price of the stock changing constantly, by the time you place the order the price would have undergone a change. In such case, you might have to use a ‘market order’ to buy the stock at the spot price you wish to buy.


Difference between the Spot Price and Strike Price

Spot Price

Strike Price

Price of a stock where it can be purchased immediately.

Price at which the underlying assets will be bought or sold at the future date.

Used in delivery trading.

Used in derivative trading (options and futures)

Determined as per the current market price.

Based on the prediction of future market price.

Smaller than the strike price.

Strike price is larger than the Spot price.

 

If you wish to do trading in Option contract and you do not have any trading account then open your account instantly through the following links.

To open your account with Alice Blue



To open your account with Angel Broking


To open your account with Zerodha


Also Read: Options Pricing - Key Factors & Impact



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