The Correct Answer and Explanation is:
The correct answer is strike price.
A stock option is a financial contract that gives an investor the right, but not the obligation, to buy or sell a specified number of shares of a stock at a predetermined price on or before a specific expiration date. This predetermined price is fundamentally known as the strike price, also referred to as the exercise price. It is the fixed price per share for which the underlying stock may be purchased (in the case of a call option, as described in the paragraph) or sold (in the case of a put option) by the option holder.
The strike price is a critical component of the option contract because it is the benchmark against which the option’s value is determined. An investor who buys a call option is speculating that the stock’s market price will rise significantly above the strike price before the option expires. If this happens, the investor can exercise their right to buy the stock at the lower, fixed strike price and then sell it at the higher current market price, realizing a profit.
Choosing “market price” would be incorrect. The market price is the current price at which a stock is trading, and it fluctuates constantly. The very purpose of an option is to lock in a specific transaction price (the strike price) that is independent of future market price movements. If the option could only be exercised at the prevailing market price, it would offer no strategic advantage. The term “spare price” is not a recognized term in finance and is an incorrect choice. Therefore, the strike price is the essential, fixed price embedded in the contract that gives the stock option its potential value.
