premium income

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Premium income

The income received by an investor who sells an option.

Premium Income

The money one makes from selling (or writing) an option contract. The term derives its name from the fact that the original sale price of an option is called the premium. One easy way to make money investing at little risk is to write covered options one does not expect to be exercised, and profiting from the premium income.

premium income

Fees in the form of premiums received by an investor who sells short a call option or put option. For example, an investor holding shares of BP can earn premium income by writing covered call options that give the buyer of the calls the right to purchase the option writer's BP shares at a fixed price until a stated date.