Define the Term 'Option Premium' in Simple Terms ⎊ Path

Define the Term ‘Option Premium’ in Simple Terms.

The option premium is the price an investor pays to purchase an options contract. It is the cost of acquiring the right (but not the obligation) to buy or sell the underlying asset at a specified price.

This premium is received by the option writer and represents the maximum loss for the buyer.

How Does the Concept of “Time Decay” (Theta) Impact the Option Buyer versus the Option Seller?

How Does High Volatility Impact the Risk of the Option Writer (Seller)?

What Is the Primary Risk for the Option Buyer versus the Option Seller?

How Does the Premium Payment Structure Differ for an Options Buyer versus an Options Seller?

Which Options Trading Strategy Involves a Similar Risk Transfer from Buyer to Seller?

What Is the Definition of an “Option Premium” and Who Receives It?

How Does Margin Requirements Differ for an Option Buyer versus an Option Writer?

Is Initial Margin the Same as Premium in Options Trading?

Glossar

Option Premium

Cost ⎊ The Option Premium represents the initial cost paid by the buyer to acquire the right conveyed by the contract, functioning as the price for risk transfer.

Underlying Crypto Asset

Asset ⎊ The term "Underlying Crypto Asset" denotes the digital token or cryptocurrency serving as the reference point for derivative contracts, such as options or futures.