option premium

Definition

The amount per share that an option buyer pays to the seller. The option premium is primarily affected by the difference between the stock price and the strike price, the time remaining for the option to be exercised, and the volatility of the underlying stock. Affecting the premium to a lesser degree are factors such as interest rates, market conditions, and the dividend rate of the underlying stock. Because the value of an option decreases as its expiration date approaches and becomes worthless after that date, options are called wasting assets.
The total value of an option consists of intrinsic value, which is simply how far in-the-money an option is, and time value, which is the difference between the price paid and the intrinsic value. Understandably, time value approaches zero as the expiration date nears. also called option price.

Use option premium in a sentence

You should try to make sure you know how much the option premium will be before you make the deal.

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I wanted to know what the option premium was and how it would factor into the rest of our business decisions in the future.

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The option premium was not substantial considering the position we were assuming here once the stock moved directions, we would then profit greatly.

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overwriting exercise price