Option premium definition

Option premium is an amount option buyers pays to option seller.

For example, say today is March and ABCD stock is trading at 20. You buy May (of the same year) Call Option to buy 1000 shares of ABCD at 25; it costs you $1 per share. This $1 per share is Option premium.

You speculate that ABCD will trade above 25 over the next two months, and you are willing to pay $1/per share Option premium to lock in the right to buy ABCD at 25 over the next two months.

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