Spot Price and Strike Price

Most of the stock market traders and investors get confused between the spot price and strike price. They believe that these terms are similar however, that’s not the case.

A lot of prominent differences can be seen between Spot Price and strike price.

These terms prevailed in the marketplace to represent the cost of an underlying asset, commodity, or currency at which trade is executing.

But, the main question arises: what are they?

Spot Price and Strike Price Meaning

As said earlier, spot price and strike price are the terms used by a buyer or seller while trading and investing in the different segments such as equity, commodity, currency, derivatives, IPO, etc.

So, how are they different from one another, and what are they? To answer the same, let’s quickly understand the spot price and strike price meaning.

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Spot Price Meaning

Spot price meaning is simple and straightforward! 

Spot Price is the current market value of an underlying asset, commodity, currency, or any other financial security that is ready to be bought or sold immediately. 

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Strike Price Meaning

The term “Strike Price” is mostly used in options trading. It refers to the fixed value of an underlying asset or security that will be traded in the future on a particular date. Know the pros and cons of Option Trading before investing in it.

So, it means that the strike price is not available for the immediate delivery of the assets or securities. 

It is also referred to as “Exercise Price” as it is the price when a seller can buy an underlying asset by exercising or using the Call Option or the price used by the seller to sell a commodity or any security in the stock market using or exercising a Put Option.

Strike Price = “WHEN EXERCISED”

If you still have doubts, you can understand the same with the help of an example given in the underneath section.

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Spot Price and Strike Price Example

To make the concept of spot price more clear, let’s consider an example. 

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Seema is a Delivery Trader and with a desire to earn profit and ownership in a company, she looks at her Market watchlist to find good equity shares. 

Within a few minutes, she found an ABC company whose current share price is Rs. 148 per share, and the shares are available for instant delivery. 

Hoping to make a good fortune in these shares, she purchased 200 shares of the company at the current price, which is Rs. 148 per share.

So, here the current price of the shares available for purchase is also known as Spot Price. 

Assuming you have understood the concept of spot price, let’s look at the example of the strike price. 

Though we have heard the word Strike Price has been mentioned in various misfolds of the stock market, however, the concept has remained to be still an enigma.

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So, to clear these confines, let us have a brief look at the strike price example.

For example

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If you are a holder and eagerly want to sell your underlying asset- shares with a profit. After a while, you have found a buyer who wishes to buy your 200 ABC company shares. 

The deal was favorable which is why you and the buyer came in options contracts with an expiry date of 2 months.

Now, you buy a put option and by exercising this feature, you put a strike price of Rs. 495. You have the right to sell the stock at the given price i.e. Rs. 495 per share. 

The price is available to be bought within the fixed duration; but not immediately. 

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Difference Between Spot Price and Strike Price

So, till here it is now clear that both spot and strike price are two different price values of the same commodity or share in the stock market. 

Let’s have a quick glimpse of the war between these two terms- spot price vs strike price! 

 

So, from the table given above, you can clearly create a perspective that the strike price is surely different from the spot price.

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Closing Thoughts

The term spot price or spot is not at all limited to only stocks or options- you can use them when referring to the current marketplace of any security or an asset. 

On the contrary, the strike price is used in the options trading while a buyer or seller exercises his call or put option and fixes the cost of an underlying asset to be traded in the coming future. 

Thus, when trading in equity delivery or intraday, the price you choose is the spot price, while the concept of strike price comes into play when trading in options.

Wish to start investing in options. For that, you need to have a demat account. Refer to the form below and avail of the services.