Strike
The fixed price at which an option's underlying asset can be bought (call) or sold (put).
Level I tests the strike as a plug in payoff and parity formulas, not as a definition. Expect a question giving spot, strike, and premium and asking for profit at expiration: a call buyer’s payoff is max(0, S − X), a put’s is max(0, X − S), then subtract the premium. The classic discriminator is put-call parity for European options — memorize c + X/(1+r)^T = p + S₀ — where the strike enters discounted as the present value of a bond paying X at expiration (the fiduciary-call leg). Forgetting to discount X is the single most common parity error. Another favorite: holding spot and volatility fixed, a higher strike raises a put’s value and lowers a call’s — the answer hinges on that directional sign.
Don’t confuse the strike (a fixed contract term that never changes) with the premium, the market price that moves continuously; the strike sets where payoff begins, the premium is what you paid to get there. Also distinguish exercise (acting at the strike) from expiration — a deep out-of-the-money option simply lapses worthless, unexercised. Hook: the strike is the line in the sand; the premium is the ticket to stand on it.
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