Investor Glossary-premiumInvestor Glossary-premiumInvestor Glossary-premiumInvestor Glossary-premiumInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Premium

WordPress
The HTML to link to this page
 

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...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: required rate of return, ex-dividend, Zero Cost Collar, debt service coverage, quality assurance, class C shares, LIBOR, command economy, stock market close, per diem, VIX, reverse mortgage, 401a, current ratio, implied volatility, labor relations, stock split, deferred tax, APR, cancelled check, 1035 exchange, phantom income, deferred revenue, liquidity ratio, minority interest, in escrow, real GDP, irrevocable trust, average price per share, covered put, inflation, open position, 1031 exchange, Key Rate Duration, margin rate, EBITDA, risk management, retained earnings, 144a, wholly-owned subsidiary, FTSE, dividends payable, limit order, ex-dividend date, balance sheet, FICO score, annual return, option premium, diluted share


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use