Strike price and exercise price are often used “interchangeably ” to denote the same: the price at which a derivative contract (e.g., an option) is “struck” and can be exercised by the holder (the buyer, the long) at or before its expiration date. For an option, it refers to the price at which the underlying asset may be bought or sold. For example, a call option buyer can buy the underlying or a put option buyer can sell the underlying at the strike price specified in the contract. The profit that can be made by an option’s holder upon exercising is the difference between the spot price and the strike price (for a call option) or the amount by which the strike price exceeds the spot price (for a put option).

However, in specific markets, the term “exercise price” denotes the total amount or aggregate exercise price paid/ received in exercise of an option or a similar instrument. The term “strike price” or “strike” specifically refers to the exercise price for an underlying unit. In other words, it is the price or rate (e.g., interest rate) at which an option or a similar instrument starts to build up a settlement value at expiration date.

In general practice, the strike price/ rate is determined and set at the time an option originates. However, specific strike prices/ rate are subject to adjustment over the lifespan of the instrument, under certain circumstances or conditions (see: adjusted strike price/ adjusted exercise price).