Exercise price

An exercise price is the price at which the holder of an option can purchase or sell the security associated with the option. The exercise price is determined when the option is originally written. If the instrument is a call option, the exercise price is the price paid by the option holder to the option writer. If the instrument is a put option, the exercise price is the price paid by the option writer to the option holder. For the option holder to earn a profit by exercising a call option, the exercise price must be lower than the current market price, so that the person can buy the stock and then immediately sell it on the open market. The reverse is the case for a put option.

The exercise price is also known as the strike price.