Clarification on Options and Premiums

ironman · 20 May 2008 at 00:51

I just need some clarification regarding the Options system when trading and what role the premium plays in the process...

Anyone care to help with some basic examples?

Cheers

Mulder · 20 May 2008 at 01:02

Not sure if i'll be able to help here but do you mean what role the premium plays in the pricing of the option? As in, if the premium (that is the nominal value of purchasing the option) affects the strike price?

ironman · 20 May 2008 at 01:13

I want to know why a premium is paid by one of the parties when an option is traded.

Mulder · 20 May 2008 at 01:15

It's basically commission.

spirit · 20 May 2008 at 07:15

essentially the premium is the price to buy option, things that affect it are strike/underlying price, vol, time, other random stuff....

read options futures and derivatives by john c. hull.. if you want to understand everything behind it all... quite mathematical but all the traders will have read it...