Premium

The premium is the price of an options contract — what a buyer pays and a seller receives, quoted per share and multiplied by 100 for a standard one-contract trade. Unlike the strike price, which is fixed for the life of the contract, the premium changes constantly based on the stock's price, how much time is left until expiration, and the market's expectation of future volatility. A premium is made up of two parts: intrinsic value (what the option would be worth if exercised right now) and time value (the extra amount reflecting the chance the option becomes more valuable before expiration). For a buyer, the premium paid is the maximum possible loss on the trade. For a seller, the premium collected is income received up front, in exchange for taking on an obligation if the option is exercised.