Part 1 Support and Resistance

What Is Option Premium?

The premium is the price paid by the buyer to the seller to purchase the option. It represents the cost of owning the right.

Premium depends on factors like:

Current market price

Strike price

Time left to expiry

Volatility

Interest rates

Demand and supply

Two components decide the premium:

Intrinsic Value – Real value based on price difference.

Time Value – Extra value because the option has time before expiry.

As expiry approaches, time value decreases — this is called Time Decay (Theta).