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Vocabulary3 min read

Why three different prices: strike, spot, forward

Strike is what you agreed in the contract. Spot is right now. Forward is what you'd pay for delayed delivery. They're not interchangeable.

Three prices show up around any derivative. They're easy to mix up because they all sound like "the price of the asset". They're not the same thing.

Spot

The price you'd pay right now for immediate delivery of the asset. What Bloomberg quotes when you type a ticker. €100 for a share, $80 for a barrel of oil, 1.07 for one euro in dollars.

Strike

The price written in the option contractat which the option can be exercised. Set when the option is created. Doesn't change once the contract is written.

A 1Y call with strike €110 gives you the right (in 1 year) to buy the asset at €110, regardless of where spot is at that point. The strike is thenegotiated price.

Forward

The price you'd pay today for delivery at a future date. Different from spot because of the cost of carry — if you wanted to lock in today's acquisition cost for delivery in 1Y, you would have to borrow money to buy the asset now and store it (or, equivalently, not pay the seller now and pay them at maturity).

For a stock with no dividends, the forward is roughly spot × (1 + r × T), where r is the risk-free rate. For a stock with dividends, you subtract the dividend yield. For commodities with storage costs, you add those.

Why mixing them up matters

  • Put-call parity says calls and puts at the same strike are equal in price only when the strike equals the forward — not when it equals the spot. People who memorize the wrong rule get confused when r ≠ q.
  • Delta hedging — the delta of an option at strike K depends on where K is relative to the forward, not the spot. ATM-spot and ATM-forward are different things.
  • Implied vol surfaces are quoted against either strike, delta, or moneyness K/F (where F is the forward). Mixing them up gives the wrong vol.
Try itOpen the Vanilla pricer. Set spot=100, time=1Y, r=5%, q=0%. The forward is 100 × e^(0.05) ≈ €105. A call at strike 100 is ITM relative to spot but notrelative to the forward. That's why ATM-forward (~105) and ATM-spot (100) give different prices.Go deeper · ProSee "When does Call = Put?" in the Foundations Q&A. The answer is ATM forward, not ATM spot — and that's the rest of this distinction in one question.