Business and Personal Finance Dictionary

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• OPTION PREMIUM
  
  When you buy an option, you pay the seller a non-refundable amount per share, known as the option premium, for the right to exercise that option before it expires. If you sell an option, you receive a premium from the buyer. In fact, collecting the premium is one motive for selling options, including those you anticipate will expire without being exercised. An option premium is not a fixed amount, and typically increases as the demand for the option increases and decreases as demand shrinks. However, factors such as the price and volatility of the underlying investment, current interest rates, and the amount of time left before the option expires also affect the premium price. You can get a sense of the current range of premium prices by looking at the Options Quotations tables in the financial pages of your newspaper. The figures you see there, expressed in numbers and fractions, represent the per-share price. You multiply by 100 to find the option premium. So, for example, 10 means a premium of $1,000 and 1/2 (or 0.5) means a $50 premium.
  
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