strike price
Strike Price is the fixed figure written into an options contract, the price at which you can buy or sell a stock if you choose to use the contract.
In plain English
Think of a landlord who tells you today that anytime in the next three months, you can rent his flat in Lekki for exactly ₦2,000,000 a year, no matter what happens to rent prices around him. You have not signed the tenancy yet, you have just locked in the right to that price if you decide to take it. That locked in figure, ₦2,000,000, is the strike price.
In the options market, that is exactly the deal. An option gives you the right, not the obligation, to buy or sell a stock at a price agreed in advance. That agreed price is the strike price, and it stays fixed for the life of the contract regardless of what the actual market price does afterwards.
Say a trader buys a call option on a Nigerian bank stock with a strike price of ₦30 per share. If the stock later climbs to ₦40, the trader can still buy at ₦30 and pocket the difference. If the stock falls to ₦20 instead, the trader simply lets the option expire and walks away, only losing the small fee paid upfront for the contract.
A UK based trader watching Tesla options works the same way. A put option with a strike price of $200 lets them sell at $200 even if the stock has crashed to $150, which is exactly why puts are bought as a kind of insurance.
For a Nigerian abroad thinking about this space, the lesson travels well even without touching options directly. Any time you lock in a price today for something you might do later, whether it is a fixed exchange rate offer from a money transfer app or a fixed rent renewal clause, you are dealing with the same logic as a strike price.
An investor buys a call option on a stock with a strike price of ₦50. The stock later rises to ₦65 on the market. The investor exercises the option, buys at ₦50, and immediately holds shares worth ₦65 each, a gain of ₦15 per share before fees.
Questions people ask
Does the strike price change after the contract is signed?
No, the strike price is fixed for the entire life of the contract. What changes is the market price of the stock, and the gap between that moving market price and the fixed strike price is where the profit or loss comes from.
What happens if the market never reaches the strike price?
Then the option simply expires worthless on its expiration date, and the only loss is the premium originally paid for the contract, similar to losing a small booking fee on an offer you decided not to use.
Is a strike price the same thing as the price you pay for the option itself?
No, those are two different figures. The premium is the small fee paid upfront to hold the right, while the strike price is the much larger figure written into the contract at which you can eventually buy or sell the stock.
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