   
|
|
Premium
|
| FYI - For 2011, Dow up, Dogs of the Dow up more (double digits) |
| |
In options trading, the premium is the total price of an option. The premium is the compensation an option writer receives for assuming the risk of writing the option. From the buyer's perspective, the premium is the cost for holding the right to buy or sell the underlying asset to the writer. If the option is exercised, the premium offsets the writer's losses. On the other hand, if the option is not exercised, the premium is the writer's profit. A premium is calculated by adding the intrinsic value of the option to its time value. The intrinsic value component of the premium is the amount by which the option is in-the-money. The time value component of the premium is chiefly determined by the amount of time left until the option expires -- along with the volatility and dividends of the underlying security as well as the current risk-free interest rate (i.e. T-bill rate).
Rate this premium definition...
|
|
Where is the market headed? The answer may surprise you. Find out
right now with the exclusive & Barron's recommended charts of Chart of the Day.
|
Popular Terms: inflation, FICO score, EBITDA, labor relations, option premium, 1035 exchange, 144a, deferred revenue, limit order, balance sheet, ex-dividend date, dividends payable, command economy, current ratio, phantom income, required rate of return, average price per share, real GDP, FTSE, stock split, deferred tax, diluted share, margin rate, class C shares, debt service coverage, minority interest, open position, annual return, ex-dividend, 401a, risk management, reverse mortgage, covered put, in escrow, LIBOR, implied volatility, wholly-owned subsidiary, irrevocable trust, quality assurance, stock market close, liquidity ratio, cancelled check, 1031 exchange, APR, Key Rate Duration, Zero Cost Collar, per diem, retained earnings, VIX
|
|
| |