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

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


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | 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