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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Option Premium

Definition:

The money that investors pay for a premium.

Example

Marybeth wants to buy $70 strike options in KO, which is trading for $67 a share now. The options expire in 3 months. She is willing to pay $6 for those options because she thinks KO will be a knockout on the stock market and will be at $85 or more in 3 months. The $6 she is willing to pay is her option premium.