How Does the "Premium" Paid for an Option Relate to the Concept of Leverage? ▴ Learn

How Does the “Premium” Paid for an Option Relate to the Concept of Leverage?

The premium is the cost to buy the option contract, which controls a much larger notional value of the underlying asset. This small cost relative to the asset's value is the source of leverage.

For instance, a $100 premium might control $10,000 worth of Bitcoin. If Bitcoin rises, the option's value may increase significantly, providing a high percentage return on the $100 premium.

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