Options Premium

The price paid by the buyer (and received by the seller) of an options contract. The premium is composed of intrinsic value (the amount the option is in-the-money) and extrinsic value (time value plus implied volatility premium). Understanding how premiums are priced -- through models like Black-Scholes and their variants -- is fundamental to options trading. Sellers collect premium as income, hoping the option expires worthless, while buyers pay premium for leveraged exposure to the underlying's movement.