Option premium


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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 ?
The company also has an attractive balance sheet that stands at $4.5 billion when including net benefits from warrants from Constellation and subtracting future cash burn, the Acreage (OTC: ACRGF) option premium payment.
The contracts can be used to manage positions in response to short-term or specific events, such as economic figure announcements and have a short time to maturity and relatively low option premium.
It is expected that the Option Premium will be distributed to such holders of record on or before July 3.
The objective of the portfolio is to achieve a consistent estimated 5% to 7% combined yield from dividend and option premium. CWP's goal is to earn an estimated 2.5% to 3% of annual portfolio income from dividends and 2% to 5% from the option premiums, which is dependent on levels of volatility and market conditions.
The main contribution of the research is the conclusion about the dynamics of an option premium value changes; represented by the direction and sensitivity; with respect to the changes of credit rating and also risk-free interest rate development.
In MLB contracts, the analog of the stock option premium is the buyout, which is an amount (usually small compared with the option year salary) paid to the player if the team chooses not to exercise the option.
Option premium fades to nothing if not exercised, and anything involving futures tends to suffers from the roll from one contract to the next.
However, the minor increase of STT on option premium from 0.017 per cent to 0.05 per cent is not expected to move the balance away from derivatives in India to the underlying equity market.
The Fund offers regular income from multiple sources, namely equity dividends, bond coupons and option premium, while still being able to capture growth opportunities and manage risks.
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.