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Investment
Option Premium
The price you pay (or receive) to buy or sell an option contract.
The premium is determined by the stock price, strike price, time until expiry, volatility, and interest rates. Higher volatility and longer time until expiry usually mean higher premiums.
It's the ticket price for the right to buy or sell later — you pay it upfront whether you use the right or not.
Real world: A call option might cost a £4.50 premium per share (so £450 total for one contract covering 100 shares). That £4.50 is the maximum you can lose if the option expires worthless.
💡 The premium is the only money you risk when buying options — but it can disappear completely if you’re wrong.