Option Premium paid vs received
I understand what is the premium on an option.
In case I acquire an option, the premium is considered as the price I pay to have the "right" to exercise the option.
In case I sell an option, the premium is the money I get from the other counterparty and he or she will have the right to exercise the option.
For these two cases, If I sell / buy the option I get, is this money considered as a premium too.
Let's say I acquire an option, paying the premium. 1 week later I sell this option to another person. Is the money received from this last person also considered as a premium?
Thank you,
Kat
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In the early days, option premium was considered the income received by the seller of an option. Over time it has come to mean the option's price and therefore, either way it's considered premium.
Let's say I acquire an option, paying the premium. 1 week later I sell this option to another person. Is the money received from this last person also considered as a premium?
No, that would just be sale proceeds.
Think of it like an insurance contract. When you sell insurance you receive the premium, and are on the hook for the risk. When you sell a contract that you own, you're just selling an asset you own.
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