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Option Premium
Options
Was es bedeutet
The price you pay per share to buy an option contract. The total cost of the option is the premium per share multiplied by 100 (the standard contract size) and the number of contracts you buy. The premium is made up of intrinsic value (if the option is in the money) and time value (the extra amount traders pay for the chance the option will move further into the money before expiration).
Beispiel
You buy 2 call options with a premium of $3.50 per share. The total cost of the trade is $3.50 × 100 shares × 2 contracts = $700. This $700 is your maximum possible loss if the options expire worthless.
Der häufigste Anfängerfehler
Beginners focus on the per-share premium and forget that each contract represents 100 shares. A $2 premium sounds cheap until you realize it costs $200 per contract, so 5 contracts would cost $1,000 total.
Verwandte Begriffe
- Strike Price — The fixed price at which the holder of an option can buy (for call options) or sell (for p…
- Call Option — A contract that gives you the right (but not the obligation) to buy 100 shares of an under…
- Put Option — A contract that gives you the right (but not the obligation) to sell 100 shares of an unde…
- Break-even — The underlying price at which an option trade results in zero profit at expiration. For ca…