Glossary · Options

Premium

The price paid for an option contract.

Premium is what the option buyer pays (and the seller receives) for the contract. Quoted premiums are typically per share, while U.S. equity options usually cover 100 shares — so a $1.50 premium costs about $150 per contract before commissions.

Premium reflects intrinsic value (if any) plus time value influenced by volatility, interest rates, dividends, and supply and demand. For buyers, premium is the maximum loss; for sellers, it is the maximum gain if the option expires worthless.

Example

You buy one put contract quoted at $2.25. Cash outlay is roughly $225 ($2.25 × 100), which is also your maximum loss if the put expires worthless.