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(1) In the United States, and sometimes other markets, the amount of money an option buyer pays for a conventional put or call or the quoted price of a listed option. (2) The amount by which the price of an option exceeds its intrinsic value. For example, if an option to buy XYZ Corporation at $100 is selling at $9 and the stock is selling at $103, the premium is said to be $6. To avoid confusion between (1) and (2), the term 'option price' or 'premium' is used to designate the market price of an option, and the term 'premium over intrinsic value' is used to designate the amount by which the stock price must rise before the expiration date for the option buyer to break even, neglecting commissions. Premium over intrinsic value is also called time value, volatility value, or opportunity value with differing degrees of accuracy and usefulness. See also Premium (4), Time Value, Volatility Value.
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