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When speaking of traded stock options, the total price of an option contract. This is the amount the option buyer pays and the option seller receives for the rights granted by the option. When speaking of financial instruments more generally, the premium is the dollar amount by which a security trades above its face value. For instance, debt with a 10% coupon will trade at a premium when the prevailing interest rate is 5%.

Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
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was last updated on Tue, Aug 21, 2018.
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