What is premium in options trading?
The actual dollars spent on a trade. We lead with it because it is the honest measure of how much somebody was willing to put at risk — a thousand cheap contracts can be a smaller bet than ten expensive ones.
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Premium, in full.
Premium is the price of the contract multiplied by how many were bought, multiplied by the hundred shares each one controls. It is simply the money that changed hands.
It matters because contract counts mislead. Ten thousand contracts at four cents is forty thousand dollars — a rounding error dressed up as enormous volume. Two hundred contracts at twelve dollars is a quarter of a million, and looks like nothing next to it in a volume column.
Any tool that ranks unusual activity by contract count rather than by premium will show you the cheap lottery tickets and hide the serious money.
It is the number that says how much conviction was behind a trade, and it is the one a volume-ranked screen gets wrong.
Words that go with it.
See it happening.
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