The contract price you pay. Multiply by 100 to get the actual cost. It is the maximum possible loss when buying the option.
What you actually pay
The premium (Premium) is the price of the contract itself: what the buyer pays and the seller collects for the right the contract transfers. It is quoted per share and multiplied by 100, because a standard contract covers one hundred shares. A premium of $2.50 means a total cost of $250 per contract.
What it is made of
The premium is the sum of two parts, and only two: intrinsic value (the gap between price and strike if the contract is in the money) and time value (everything above that). An out-of-the-money contract has a purely time-based premium, and a deep in-the-money contract has mostly intrinsic premium. The time part is what theta eats away day by day and what moves with implied volatility.
A compass for both sides
For the buyer: the premium is the most they can lose, and the bar the move has to clear before profit begins at expiration. For the seller: it is the most they can make, collected up front, hoping the contract dies worthless. Every premium-collecting and premium-paying strategy comes from here.
Hypothetical example
A stock at $100 and a call with a $105 strike and a $1.80 premium. The breakeven at expiration is $106.80. The stock rose only to $104: the contract died worthless even though the stock went up, and the whole premium went to the seller.
Common mistake
Forgetting the multiplier of one hundred when calculating exposure: selling ten contracts at a $3 premium means collecting $3,000 and an obligation on a thousand shares, not ten.
Where to see it on the platform
The options chain shows the premium at every strike, and the Net Premium Flow tool adds up the session's premiums on buys and sells, showing which side is actually paying.
