The amount paid for an option.

The premium of an option is generally composed of two parts:

1. The “intrinsic” value (the smaller of either:

• 0;

• in the case of a call option, the difference between the price of the underlying asset and the strike price of the option;

• in the case of a put, the difference between the strike price of the option and the price of the underlying asset.)

2. The “time” value (a function of of time remaining to expiration, volatility and interest rates).