Strike Price & Premium

Two numbers define every optionThe right, not the obligation, to buy or sell at a set price. quote: the **strike priceThe fixed price at which an option can be exercised. (the fixed price you’d transact at) and the premium** (what you pay for the optionThe right, not the obligation, to buy or sell at a set price.). Confusing them is a classic beginner error, so let’s separate them cleanly.

• Strike priceThe fixed price at which an option can be exercised. — the pre-agreed price at which the optionThe right, not the obligation, to buy or sell at a set price. lets you buy (callThe right, not the obligation, to buy or sell at a set price.) or sell (putThe right to sell the underlying at a set price — a bearish bet.) the underlying. It’s fixed for the life of the contract; you choose it when you pick the option.
• Premium — the *market price of the optionThe right, not the obligation, to buy or sell at a set price. itself*, paid by the buyer to the seller. It moves constantly with the underlying, time and volatilityThe size of price swings — not their direction. (the GreeksNumbers measuring how an option’s price reacts to each factor., next module).