Option premium
Also called: premium
The price paid by an option buyer to the seller, quoted per unit of the underlying.
The premium is made up of intrinsic value and time value. It is higher when the option is closer to or in the money, when more time remains and when expected volatility is higher. A cheap premium usually reflects a low chance of profit.
Example
A premium of ₹18 on a lot of 500 costs ₹9,000.
Learn more in these lessons
- Call and put optionsWhat are call and put options, and what does each side risk?
- Strike prices, premiums and expiryWhat do the numbers in an option quote mean, and is a cheap option a good deal?
- Moneyness, intrinsic value and time valueWhat makes up an option's premium, and why does it shrink as expiry approaches?
- The risks of buying and selling optionsIs it riskier to buy options or to sell them?
Related terms
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