Option Premium

The price paid by an option buyer to the seller for the contract.

Example

A premium of 3 on a 100-share contract costs 300.

For a buyer the premium is the maximum loss; for a seller it is the maximum gain, set against potentially much larger losses.

Time Value — The part of an option's premium above its intrinsic value, reflecting time left and expected volatility.
Intrinsic Value (Option) — The amount an option would be worth if exercised immediately, and zero if exercising would not pay.
Implied Volatility — The level of future price movement that current option prices assume.

A contract about a price, not a piece of anything — An option or future is an agreement whose value depends on another asset. You own a right or an obligation with an expiry date, not a share of a business. (10 min)
Big percentages on a small bet, and most bets expire worthless — Option payoffs are lopsided: a bought option can multiply its premium or lose all of it, and the price usually has to move a long way just to break even. (12 min)
You pay for intrinsic value, time and uncertainty - and time runs out — An option's price has two parts: what it would be worth if exercised now, and extra value for the time and volatility left. That second part shrinks to zero by expiry. (12 min)
Appraising one position: maximum loss, break-even, cost and what you are really betting on — Before any derivatives trade, write down five numbers. If you cannot fill them in, you are not evaluating a position - you are guessing. (11 min)