👉 Strike math, also known as the stock price strike price calculation, is used to determine the potential profit or loss when a call option is exercised. For a call option, the strike price (K) is the predetermined price at which the buyer must purchase the underlying asset if they choose to exercise the option. The formula to calculate the theoretical profit (or loss) is: Profit = (Exercise Price - Stock Price) x Number of Shares. If the stock price is above the strike price, the profit is positive; if it's below, the loss is calculated as (Strike Price - Stock Price) x Number of Shares. This simple yet powerful calculation helps investors gauge the potential value of exercising an option based on current market conditions.
