Angie · learn
Option premium
What the buyer pays the seller for the contract. It is the option's price, and it is made of exactly two things: intrinsic value and time value.
Updated 2026-09-05
The premium is what the option costs, quoted per share and multiplied by 100 because a standard contract covers 100 shares. A premium of $2.40 is $240 for the contract.
premium = intrinsic value + time value
See intrinsic and time value. Every option price decomposes into exactly these two parts, and only one of them survives to expiry.
The premium moves with five things: the price of the underlying, the strike price, the time remaining, the risk-free rate, and expected volatility. The first four are known to everyone. The fifth is not, which is why it does most of the work. See implied volatility.
See also
- Intrinsic and time value — Intrinsic value is what the option would be worth exercised right now. Everything else in the price is time value, and it decays to zero at expiry.
- Implied volatility — How much movement the option's price implies the market expects. It is not a forecast anyone made, it is what falls out of the price when you solve backwards.
- Option — A contract giving the right, but not the obligation, to trade something at a set price before a set date. The buyer has the right and the seller has the obligation.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
