Option Premium
The price paid by an option's buyer to its writer for the rights the contract confers.
Formula
Premium = Intrinsic Value + Time Value; Total Cost = Premium x Lot Size
Unit
₹
In depth
The premium splits into intrinsic value, which is what the option would be worth if exercised immediately, and time value, which is everything else — the market's price for the possibility of a favourable move before expiry. Time value decays to zero by expiry, which means an option holder is paying rent for every day the position is open. Premiums rise with volatility, with time remaining, and with proximity to the money, which is why the same strike can double in price without the underlying moving at all. Quoted premiums are per unit, so the actual outlay is the premium multiplied by the lot size.
Worked example
A 24,000 call quoted at 300 with a lot size of 75 costs 300 x 75 = ₹22,500. If the index is at 24,000, the intrinsic value is zero and all ₹22,500 is time value — an amount guaranteed to reach zero by expiry.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Option Premium” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.