Exercise price

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Exercise price

The price at which the security underlying an options contract may be bought or sold.

Strike Price

In options, an agreed-upon price for which the underlying is bought (in case of a call) or sold (in case of a put) if the option is exercised. For a call option to be profitable, the strike price must be lower than the market value of the underlying at the time the option is exercised. The opposite is true for a put: the strike price must be higher than the market value. In most cases, the amount of the strike is stated in the option contract; however, in Asian options, the strike is a formula, rather than a set price. For example, the strike may be the average price of the underlying over a set period of time. The strike price is also known as the exercise price or the striking price.

exercise price

The dollar price at which the owner of a warrant or an option can force the writer to sell an asset (in the case of a call option or warrant) or to buy an asset (in the case of a put option). The exercise price is set at the time the option is issued and, except for unusual instances that include warrants, remains constant until the option expires. A market price of an asset above, or expected to be above, an option's exercise price gives the option value. See also aggregate exercise price, step-up.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Exercise price.

An option's exercise price, also called the strike price, is the price at which you can buy or sell the stock or other financial product that underlies that option.

The exercise price is set by the exchange on which the option trades and remains constant for the life of the option.

However, the market value of the underlying investment rises and falls continuously during the period in response to market demand.

References in periodicals archive ?

The company stated, "The limited controls and the lack of definitive processes for stock option granting and approval allowed for abuse, including on three separate occasions the apparent use of hindsight in the establishment of more favorable grant dates and exercise prices for options." OI will restate its financial statements, reducing retained earnings and increasing additional paid in capital by $371,000.

OI Corporation CEO resigns following option-dating investigation

* No options may ever be granted or modified with an exercise price less than the fair market value (FMV) as of the grant date (32);

Deferred compensation for executives under sec. 409A

CEO Steve Jobs voluntarily turned in 55 million stock options, with a weighted average exercise price of $18.31, in exchange for 10 million restricted shares worth $74.5 million (based on a $7.45 share price).

Why stock options still make sense: news reports herald their demise, but two consultants argue that stock options--used by 90 percent of the largest U.S. companies--remain the cornerstone of U.S. equity compensation, and for good reasons

Re-pricing options to a lower exercise price results in lower earnings, while failure to re-price could lead to the loss of talented employees.

The stock options accounting subterfuge: Stock options are employee compensation. Why then aren't these costs recognized on income statements? (Financial Reporting)

The comparison of the two exercise prices provides a better understanding of the nature of incentives provided through stock options.

Maturity and exercise price of executive stock options

Finally, Part V discusses the potential additional benefit of providing in the option plan for the use of previously acquired shares of employer stock to pay the exercise price under an ISO, and explores other means of facilitating the exercise of ISOs by employees.

Incentive stock options revisited

The final piece of the incentive-equation puzzle is determining the exercise price at which the LSOs will be in-the-money.

Is value management the answer?

offered restricted stock or cash (if less than $3,125) in exchange for stock options, vested or not vested, with exercise prices equal to or greater than $44.

Stock options: weighing the impact of bailouts; a survey by investment bank Houlihan Lokey Howard & Zukin examines trends in the use of option cancellations and repricings since the economic bubble burst

Moreover, assuming that the company's stock price increases over time, subsequent grants will be at higher exercise prices. This should keep stock option grantees focused on continuous performance improvement.

Advice for companies planning to issue stock options

For example, if the exercise prices of the options in the above examples were raised to $30 from $25, the value of the options using Black-Scholes would fall to $4.56 and $1.57, versus $5.75 and $2.80, for the small and large companies, respectively.