Understanding Option Premium

Learning Objective:

  • Learn how to read an Option Contract
  • Understand how Delta, Gamma, Theta, and Vega affect the option premium of Call and Put contracts.

 

Let’s do a quick review;

 

What is option premium?

● Option premium is the value of an option. This is the value you pay
when buying and the value you will receive when selling.
● Premium is reflected on a per share basis.
○ 1 contract allows you to control 100 shares.
○ An option with a premium of $1.35 translate to being worth $135
● The ‘premium’, or the price of the option, will instantly increase or
decrease due to supply and demand, volatility, implied validity,
stock price, and Greeks.