What Is an Option Premium? How Option Prices Are Quoted
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Convert an option quote into the dollar cost of a trade, and split a premium into intrinsic value and time value.
An option premium is the price of an option: what the buyer pays and the seller receives for the contract. Premiums are quoted per share, so the dollar cost of one standard contract is the quoted price times 100.
The premium is where every option trade starts. For a standalone long option, it is the maximum option loss before fees; for a standalone short option, it is the maximum option profit. Stock positions created by exercise or assignment have separate risk. This lesson covers how premiums are quoted, what the prices on a quote screen mean, and what goes into a premium in the first place.
What is the premium of an option?
The premium is the full price of the option, paid in cash when the trade is made. It is not a deposit, not a margin payment and not the strike price. What Is a Strike Price? covers the strike, which is the price of the shares if the option is exercised; the premium is the price of the option itself.
Who pays and who receives it depends on your side of the trade, as Buyers and Sellers explains:
- The buyer pays the premium and gets a right. If the option expires worthless, the premium is the whole loss.
- The seller receives the premium and takes on an obligation. The seller keeps the premium whatever happens, but can lose far more than it if the trade goes against them.
How are option prices quoted?
Option prices are quoted per share, even though one standard contract covers 100 shares. In one sentence: premium paid = quoted price x 100 x number of contracts, before commissions and fees.
So an option quoted at $0.45 costs $45 per contract, and ten of them cost $450. An option quoted at $12.00 costs $1,200 per contract. The 100 is the contract multiplier, which The Contract Multiplier and Adjusted Options covers in detail, including the cases where a contract no longer covers exactly 100 shares.
Option quotes move in small fixed steps. Under Cboe EDGX Rule 21.5, for example, options outside the Penny Interval Program are quoted in $0.05 steps below $3.00 and $0.10 steps at $3.00 or more, while classes in the Penny Interval Program are quoted in $0.01 steps below $3.00 and $0.05 steps at $3.00 or more. Trades can print in finer increments than quotes.
Which price do you pay for an option?
A quote screen shows two prices for every option, not one:
- The bid is the highest price someone is currently offering to pay. It is roughly what you would get if you sold right now.
- The ask, also called the offer, is the lowest price someone is currently willing to sell for. It is roughly what you would pay if you bought right now.
The gap between them is the spread, and many screens also show a mark, the midpoint of the two. When you work out what a trade costs, use the price you would actually trade at, not the midpoint. The Bid, Ask and the Spread lesson covers what the spread costs you and how the mark and the last price can mislead.
Reading an option quote
ONE CONTRACT
XYZ 50 Call
Bid
$1.76
Ask
$1.86
Mark
$1.81
Spread
$0.10
$1.86 ask x 100 shares x 3 contracts = $558 premium
Worked example
Turning a quote into the cost of three XYZ 50 calls
All figures below exclude commissions and fees. XYZ trades at $50. The XYZ 50 call expiring in 30 days is quoted $1.76 bid, $1.86 ask, and you buy three contracts at the ask.
- Per contract: $1.86 x 100 = $186.
- Premium paid for three: $1.86 x 100 x 3 = $558. That is the most the option position can lose.
- What the premium is made of: with XYZ at $50, the 50 call has no intrinsic value, so all $1.86 is time value.
- At expiration: the position breaks even at the strike plus the premium paid per share, $50 + $1.86 = $51.86. Above that, each $1 rise in XYZ adds $300 across the three contracts.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Three XYZ 50 calls bought at $1.86, at expiration
Hover or tap the chart, or focus it and use the arrow keys, to read any price.
Open this trade in the free calculatorShow as table
What determines an option's premium?
Every premium splits into two parts. In one sentence: premium = intrinsic value + time value.
The Options Industry Council's pricing primer explains these components and the major factors that move option prices.
- Intrinsic value is what the option would be worth if exercised right now: for a call, the stock price minus the strike, and for a put, the strike minus the stock price, never less than zero.
- Time value is everything above that. It is what the market will pay for the chance that the option becomes more valuable before it expires.
With XYZ at $50, a 45 call quoted at $5.36 has $5.00 of intrinsic value and $0.36 of time value. The 50 call at $1.81 has no intrinsic value, so all $1.81 is time value.
Several forces move the premium from moment to moment:
- The stock price against the strike. This sets the intrinsic value, covered in In the Money vs Out of the Money.
- Time to expiration. More time generally adds time value, other inputs held constant, as When Do Options Expire? showed.
- Implied volatility. The more the market expects the stock to move, the more options on it cost.
- Interest rates and dividends, which matter less for most short-dated options.
The Option Greeks Explained measures each of these forces, and What Is Implied Volatility? looks closely at the third one.
Check your understanding
An option is quoted at $0.65. What do five contracts cost, before fees?
Show answer
$325. The quote is per share, so $0.65 x 100 x 5 = $325.
An option is quoted $2.10 bid and $2.30 ask. Roughly what would one contract cost if you bought it right now, before fees?
Show answer
About $230. A buyer pays near the ask, so $2.30 x 100 = $230 per contract, not the $210 bid or the $220 midpoint.
XYZ trades at $50 and a 45 call is quoted at $5.36. How much of that premium is intrinsic value, and how much is time value?
Show answer
$5.00 is intrinsic value ($50 - $45), and the remaining $0.36 is time value.
Key takeaways
- The premium is the price of an option: the buyer pays it for a right, and the seller keeps it in exchange for an obligation.
- Premiums are quoted per share, so the dollar cost is the quote x 100 x the number of contracts.
- The bid is what buyers offer and the ask is what sellers want; a buyer pays near the ask, so cost a trade at the price you would actually fill.
- Every premium is intrinsic value plus time value, and it moves with the stock price, time and implied volatility.
Common questions
How do you calculate the premium of an option?
To turn a quote into the dollar premium, multiply the quoted price by the contract multiplier and the number of contracts. A standard option quoted at $1.80 costs $180 per contract before fees; add fees separately for the total trade cost. This calculation does not determine the market quote, which buyers and sellers set.
What is an option premium made of?
Intrinsic value plus time value. Intrinsic value is the amount the option is in the money; time value is everything above that, which reflects the time left and how much the stock is expected to move.
Who gets the premium when you buy an option?
The seller of the contract, through the exchange and the clearing system. The seller keeps the premium whatever happens next, in exchange for the obligation that comes with it.
Is an option premium quoted per share or per contract?
Per share. A standard contract covers 100 shares, so the dollar premium for one contract is the quoted price times 100. An option quoted at $2.50 costs $250 per contract before fees.