Option Premium
The price of the option contract: intrinsic value plus time value.
What is Option Premium?
What the buyer pays and the seller receives. Intrinsic value is the amount the option is in the money; the rest is time value, which decays toward zero at expiration and rises with volatility.
Option Premium: a worked example
Stock at $52, $50 call trading at $3.20 = $2.00 intrinsic + $1.20 time value.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.