Option premium

Also found in: Wikipedia.

Option premium

Option Premium

The price one pays to buy an option contract, whether it is a call or a put, when one is the first buyer. That is, when the option is written, its first buyer pays the option premium. It should not be confused it with the strike price, which is the price one would pay for the underlying asset, should the option be exercised.

option premium

See premium.

Option premium.

When you buy an option, you pay the seller a nonrefundable amount, known as the option premium, for the right to exercise that option before it expires.

If you sell an option, you receive a premium from the buyer. In fact, collecting the premium is often one motive for selling options, including those you anticipate will expire without being exercised.

An option premium is not a fixed amount, and typically increases as the option moves in-the-money and decreases if it doesn't move in-the-money.

However, factors such as the price and volatility of the underlying instrument, current interest rates, and the amount of time left before the option expires also affect the premium price.

You can look at the current range of premium prices in the Options Quotations tables in newspapers or on options websites, such as the Options Clearing Corporation (OCC) website.

References in periodicals archive ?
Option premium fades to nothing if not exercised, and anything involving futures tends to suffers from the roll from one contract to the next.
IRON Funds has launched IRON Equity Premium Income Fund (NSDQ: CALLX, CALIX) with an objective to generate competitive option premium income, the company said.
While we initially intended for the name to focus on the dividend features of the equity selection procedure, it has led to a complicated manner of describing the fund, as a much larger part of the portfolio revenue has arrived from option premium rather than from dividends.
With hindsight, many firms come to realise that hedging would have been a valuable strategy, if they could only have persuaded themselves to pay an option premium in the first place.
The contract also includes up to USD26m as an option premium and research and development funding.
On the exercise of an NCPO, the holder generally is viewed as contributing property in an amount equal to the option premium and the exercise price paid to the partnership in exchange for a partnership interest.
3%, a 1 EUR change in the underlying price will cause the option premium to change by 45.
Note that the potential return of HVPW is limited to the amount of option premium it receives, while the Fund can potentially lose up to the entire strike price of each option it sells.
Assuming your company has owned the property for many the stock (bought for $2,000, sold for $2,200) in addition to the option premium she collected plus any dividends.
For investors buying equity options, the future can be reasonably predictable; they may not know what the market is going to do, but they already have a worst-case scenario - the most they can lose is the option premium.
Thus, one may also try to approximate the change of an overlying option's premium in an indirect manner by first estimating the possible decline in the stock's value and then using the said decline to calculate the effect in the option premium.
The model is priced at USD32,000 and the sole option Premium Package sells for USD4,000.