Option Premium

The option premium is the price paid to purchase an options contract — a call or a put — for the right, not the obligation, to buy or sell the underlying asset at a set strike price. It is not the strike price, and it is not a guaranteed profit; it’s simply the cost of holding that right for the life of the contract.

For a simple long position (you bought a call or a put and did nothing else), the premium is also your maximum possible loss. If the option expires worthless — the underlying never moved favorably enough to make exercising it worthwhile — you lose the premium and nothing more. That capped-downside property is the core structural difference between buying an option and holding a leveraged perpetual future, which can liquidate you for more than your intended risk if the market moves against you quickly. See our options vs perps guide for the full comparison.

Premium is priced using the underlying asset’s price, the strike price, time to expiry, and implied volatility — higher implied volatility generally means a higher premium, since a more volatile asset has a greater chance of moving enough to make the option valuable. Writers (sellers) of options collect the premium upfront in exchange for taking on the buyer’s former risk — see The Complete Guide to Onchain Options for why that’s a fundamentally different risk profile than buying.