Premium is the amount of money an option owner must pay to an Option Writer (or seller) to purchase the option contract from them. The premium fluctuates according to a number of factors, including the price of the Underlying instrument, the length of time until Expiration and Volatility. The Option Writer keeps the premium irrespective of whether the rights under the option contract are exercised or not. The premium represents the current value of a tradable option and will reduce to nothing if the Strike Price of the option is not In The Money on Expiration date.
Contributed by: Ralph Windsor
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