Futures & options
What is Option premium?
Also called: Intrinsic value, Time value
Hinglish mein padhein: Option premium kya hota hai?
The premium is the price of an option. It is made of intrinsic value (how much it is in the money) plus time value.
Time value shrinks as expiry nears — this decay is called theta, and it works against option buyers.
Higher implied volatility raises premiums for both calls and puts.
Related terms
- Options (call and put)An option gives the buyer the right, but not the obligation, to buy (call) or sell (put) at a strike price before expiry. The seller takes the obligation.
- Implied volatility (IV)Implied volatility is the market's expectation of future volatility, backed out from option prices. High IV means expensive options.
- Option GreeksThe Greeks measure how an option's price responds to changes: delta (underlying price), theta (time), vega (volatility) and gamma (change in delta).