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

The option premium is the price paid by the buyer to the seller (writer) for the contract's rights, representing the maximum loss for the buyer.
Greeks.Live19.11.25

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

The option premium is the price a buyer pays to the seller (writer) for the rights conveyed by the option contract. It is the maximum amount the option buyer can lose.

The option writer receives this premium upfront. For a miner buying a put option to hedge, the premium is the cost of their insurance against a price drop.

The premium is composed of the option's intrinsic value and its time value.

What Is the Maximum Loss for an Option Buyer?
What Is the Difference between an American and a European Option?
Explain the Concept of ‘Premium’ in an Options Contract
What Is the Maximum Profit for the Writer of Any Option Contract?

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