Premium
The price paid by the option buyer to the option seller for the rights granted by the contract.
Formula
Premium = Intrinsic Value + Time Value
The premium is the market price of an options contract. The buyer pays it upfront; the seller receives it as immediate income. For a call or put on 100 shares, the total cost is premium × 100.
Premium is composed of two parts: intrinsic value (how much the option is in the money) and time value (the optionality remaining before expiry, influenced by implied volatility and time to expiration).
The premium is the buyer's maximum possible loss. The seller's maximum gain is capped at the premium received.
Related Terms
Cash-Secured Put
Selling a put while setting aside enough cash to buy the shares if assigned — collecting premium with the willingness to own the stock at the strike.
IntermediateCovered Call
An options strategy where the holder of a long stock position sells a call option against it, generating income at the cost of capping upside.
IntermediateImplied Volatility
The market's forward-looking expectation of volatility, derived by solving the options pricing model for the volatility that matches the observed premium.
AdvancedIntrinsic Value
The immediate exercise value of an option — how much in the money it is right now, ignoring time and volatility.
IntermediateOptions Chain
The quoted matrix of all available calls and puts for a given underlying, organized by strike and expiration date, showing bid/ask, IV, volume, and open interest.
BeginnerOptions Contract
A contract giving the buyer the right — but not the obligation — to buy or sell an underlying asset at a set price before or on expiration.
BeginnerTime Value
The portion of an option's premium beyond its intrinsic value, reflecting the probability that the option moves further in the money before expiry.
Intermediate