What Is the ‘Transaction Cost’ Component of an Option’s Premium?
The transaction cost component is the market maker's estimation of all costs incurred in executing the options trade and the necessary hedges. This includes exchange fees, slippage, market impact, and the cost of funding the hedge (borrowing/lending).
This component is added as a margin to the theoretical option price to ensure profitability.
Glossar
Cost Component
Element ⎊ A cost component in crypto derivatives trading encompasses all quantifiable expenditures incurred during the execution and maintenance of a financial position.
Transaction Cost Component
Explicit ⎊ The explicit transaction cost component comprises the direct, measurable fees charged by exchanges and brokers for executing trades in cryptocurrency and derivative markets.
Transaction Cost
Cost ⎊ The aggregate expenses incurred when executing a trade or transferring an asset, encompassing direct and indirect elements, represents a critical consideration for traders and portfolio managers across cryptocurrency, options, and derivatives markets.