What Is the “Premium” in an Options Contract?
The premium is the price paid by the option buyer to the option seller (writer) for the rights granted by the contract. It is the maximum amount an option buyer can lose.
The premium is determined by factors including the underlying asset's price, volatility, time to expiration, and interest rates. It is paid upfront and is the option writer's initial profit.
Glossar
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.
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.
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.