Net Option Premium

Some option strategies involve multiple legs. That means you are simultaneously buying and selling different options, either to set up a series of hedges or to profit from a highly specific scenario.

The net option premium measures the profit or cost that setting up that series of options generates. Take the total gain of all the options you sold (minus commissions) and subtract the total cost of all the options you bought (minus commissions). A positive number means you earned money from setting up the options strategy. A negative number means you spent money (though you still might profit later if your options pay off).

You're an options trader. You buy 10 calls for candy-maker Big Sugar Slow Munchies Inc., costing you $5. Meanwhile, you sell 5 puts for the same strike price for Big Sugar, each grossing you $3. So you paid $50 for your calls, but earned $15 for selling the puts. That series of transactions leads to a net option premium of negative $35. You paid $50, but brought in $15. On a net basis, it cost you $35 to set up those deals.