What is Option Premium?

The option premium is the price paid by the buyer to purchase an options contract. It is also the amount received by the option seller when the option is sold. Realise that the premium changes based on factors such as the:

• Underlying asset’s price
• Strike price
• Time remaining until expiry
• Expected dividends
• Volatility, and 
• Market demand and supply.

For example, suppose a Nifty 25,000 Call option is trading at a premium of ₹150. Now, the buyer pays ₹150 per unit of the option. The total premium depends on the contract’s lot size.

How is Option Premium Calculated?

Option premium is primarily determined by the option’s “intrinsic value” and “time value”. For those unaware, intrinsic value is the amount by which an option is already “in-the-money”. For example, 

• A call with a ₹1,000 strike price is worth ₹100 in intrinsic value when the stock trades at ₹1,100. 

On the other hand, “time value” reflects the possibility that the option may gain additional value before expiry.  

Trade Nifty Options and Avail of a Leverage of Up to 500X Margin!

Trade246 is a multi-asset trading platform offering Nifty Futures and Options (NFO) trading alongside different domestic and international market segments. To make a deep market analysis, our users can access advanced charts and several “pre-trade calculators”, such as brokerage, intraday, and margin calculators.

Join the 50,000+ traders today! Register and explore Trade246’s options trading platform.