Option premium


When buying stocks you simply look at its share price and calculate how many shares you wish to purchase, the original price paid is called the principal. In options, it is called the premium. The premium is the price that the writer or seller of the option recieves and on the option buyer side, it is the price paid to acquire the option. Premium has two sides on it, if you are the writer or seller of an option, the premium received is considered quick income if the underlying stock owned does not go in the opposite direction and it is not exercised by the buyer of the the contract. On the buyer side, the premium paid is money that is lost and connot be recovered unless when the underlying stock is exercised at a profit or the option contract is sold at a higher price.


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