What is The Cost of Options?

This video delves into the concept of "Premium" in options trading, explaining it as the cost of acquiring an option contract, akin to a fee. It's highlighted that the premium is not static but comprises two main components: intrinsic value and time value. Intrinsic value relates to the actual value of an option, dependent on the difference between the underlying asset's market price and the strike price. Time value is tied to the potential for the option's value to increase before its expiration, influenced by the remaining time and market volatility. The calculation of an option's premium involves adding its intrinsic value to its time value. The importance of understanding premium is underscored for investors, as it offers insights into market sentiment, and expectations, and can indicate shifts in option prices based on changes in intrinsic and time values. The session concludes by emphasizing the role of the premium in making informed decisions in the options market.

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