Explain the Concept of ‘Options Premium’.
The Options Premium is the price paid by the option buyer to the option seller for the rights granted by the contract. It is the market price of the option.
The premium is composed of two main components: Intrinsic Value and Time Value (or Extrinsic Value). The premium is determined by factors like the underlying asset’s price, strike price, time to expiration, and volatility.
Glossar
Time Value
Duration ⎊ The temporal dimension inherent in cryptocurrency derivatives, options trading, and financial instruments fundamentally defines time value.
Option Buyer
Premia ⎊ An option buyer, within cryptocurrency derivatives, initiates a position predicated on a directional view, acquiring the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date.
Market Price
Valuation ⎊ Market price represents the most recent, observable valuation at which an asset, such as a cryptocurrency or a derivative contract, was traded on an open exchange.
Option Seller
Strategy ⎊ The Option Seller, within cryptocurrency derivatives, fundamentally assumes a short position, profiting from a decline in the underlying asset's price or volatility.
Options Premium
Valuation ⎊ The options premium within cryptocurrency derivatives represents the price a buyer pays to a seller for a contract conferring the right, but not the obligation, to buy or sell an underlying asset at a specified strike price on or before a specific expiration date.
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.