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Option Premium

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Definition of 'Option Premium'

The price that you pay to own an option is known as the option premium. This is also known as the option price. Do not confuse this with the option's strike price which is the exercise price for the option.

The option premium has two components; its intrinsic value and its time value. The option will only have intrinsic value if it's in the money. If its at the money or out the money then its premium will be that same as its time value.

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