An option premium is a difference between the strike price and the current market price of the option contract. Therefore, it is the profit earned by the seller (writer) of an option contract. For in-the-money options, there are two components: intrinsic and extrinsic value. The premiums on out-of-the-money options are entirely based on intrinsic value.

The premium for stock options is expressed in dollars per share, with the majority of contracts implying a commitment of 100 shares.

An option premium is the price paid by the buyer to the seller (writer) for acquiring an options contract. It represents the cost of holding the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) before or on the expiration date. The premium is influenced by several factors, including the intrinsic value (difference between the asset’s current price and the strike price), time value (time remaining until expiration), volatility of the underlying asset, interest rates, and market demand. Higher volatility or longer expiration periods typically increase the premium. The seller retains the premium as profit if the option expires worthless, while the buyer aims to profit from favourable price movements exceeding the premium paid.