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Option Premium

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Option premium refers to the per-share amount that a buyer pays for an option - for the right to buy/"call" or sell/"put" a security at a specified price in the future. An option premium is a nonrefundable, full payment (not a down payment) for the rights specified in the stock option contract. One pays an option premium regardless of whether or not the option is actually exercised. The option premium often changes, due to fluctuating market conditions and economic variables. An option premium is therefore determined by several factors. The main thing affecting the option premium is the difference between the stock price and the strike price, which is the specified future price. Additional primary factors affecting the option premium include the time remaining for the option to be exercised and the volatility of the underlying stock.



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