Plain-English definitions, reviewed by an independent investor

Option Premium

The premium is the price paid to buy an option contract.

Premium = Intrinsic Value + Time Value

Why it matters

It is the cost and the most you can lose as a buyer.

Time decay eats the premium daily; sellers collect it but take the risk.

Definitions reviewed by the Investing Glossary editorial team.

Distance to strike, time left, and expected volatility.

Yes, at expiry if the option is out of the money.