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Core Concepts for New Options Traders The Premium: Paying for Insurance, Not Just Price When you buy an option you pay a premium. Think of this premium as an insurance policy on the underlying asset. It is not the price of the stock or index itself; it is the cost of the right to buy (call) or sell (put) at a predetermined strike price. The premium is made up of two parts: intrinsic value and extrinsic value. Intrinsic value is the amount an in‑the‑money option would be worth if exercised right now. Extrinsic value, sometimes called time value, reflects everything...