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


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