An Option Premium is the current market price of an option contract. It is the income received by the seller (writer) of an option contract to another party in exchange for taking on a certain level of risk. Option premiums are composed of two factors: intrinsic and extrinsic value, which can vary depending on whether or not it’s “in-the-money” or “out-of-the money." Intrinsic value represents how much money can be made if exercised immediately at current prices while extrinsic value reflects all other external factors such as volatility, time remaining until expiration and interest rates that affect its pricing.In general, in order for options contracts to have any intrinsic value they must be "in-the money," meaning that their strike price is lower than the underlying asset's spot price; out -of -the Money options do not contain any intrinsic values but only consist solely from their extrinsic values. The higher strike prices will lead to higher premiums due to greater uncertainty associated with them as well as longer durations before expiry date also drive up costs because there are more chances something could happen during this period which would make these contracts valuable again.Option premiums provide investors with leverage when trading stocks because they allow traders to speculate without having large amounts capital upfront since you only need pay a fractional amount relative what buying stock outright would cost you – making it attractive way gain exposure markets without risking too much your own funds at once. Moreover, understanding how calculate both components these fees important successful investing strategies over long run so always best research thoroughly before entering into any type agreement involving derivatives like call put options futures etcetera.
