What are option premiums in trading?

Asked 3 years ago

Hello. I decided to start out by learning a call options trading strategy. As I was navigating around the trading platform, I saw something called 'option premiums.' What are these? (Please give an example) While we're at it, could you also please tell me how option premiums are calculated?

Andia Rispah Igobwa

Tuesday, September 14, 2021

The current market price of an option contract is known as the option premium. It's the money paid to the seller (writer) of an option contract by another individual, known as the buyer (taker).

Intrinsic and extrinsic value make up in-the-money option premiums. A put option's premium is simply the extrinsic value.

Premiums for stock options are typically expressed as a dollar amount per share, and most agreements cover the commitment of 100 shares.





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