Definition
The price paid to buy an option.
The story
If a call costs $2 and covers 100 shares, the buyer pays $200. That's the most the buyer can lose. The seller collects the $200 up front but takes on the obligation if the option is used against them, and for some options that risk has no cap. Premiums rise when a market is expected to swing more, because the option has a better chance of paying off.
Why markets watch it
Premiums show how much protection or upside costs, which is one way markets reveal how nervous traders are.
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms