"Premium" Definition
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 Glossary   >   P   >   "Premium" Definition   

        Premium

The cost of an option contract.

(1) for a bond above the par value. (2) The price of an option contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45 and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond, if low, like a stock. See: gross parity, net parity. For futures, excess of fair value of future over the spot index, which in theory will equal the Treasury bill yield for the period to expiration minus the expected dividend yield until the futures expiration. For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). For straight equity, price higher than that of the last sale or inside market. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a convertible security.

1. The total cost of an option.

The single or regular periodic payment made to an insurance company in respect of an insurance policy.

The extra amount you pay for a security over and above its intrinsic value. For example: Warrants: the premium on a warrant is calculated as the price of the warrant minus the difference between the exercise price and the price of the underlying asset. So if a warrant costing 8p gives you the right to buy a share at 75p, and that share was currently trading at 70p, the premium would be 3p (8-5). Investment trusts: the premium is the amount by which the share price of the investment trust exceeds its net asset value per share. e.g. If the Net Asset Value is 3.00, and the share price of the trust is 3.30, the trust is trading at a 10% premium to its NAV. In the more common situation where the share price is below the net asset value, the trust is said to be trading at a discount.

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Premium - The cost of an option contract.

(1) for a bond above the par value. (2) The price of an option contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. If a stock is trading at $45 and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the premium is high, the bond trades like any fixed income bond, if low, like a stock. See: gross parity, net parity. For futures, excess of fair value of future over the spot index, which in theory will equal the Treasury bill yield for the period to expiration minus the expected dividend yield until the futures expiration. For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). For straight equity, price higher than that of the last sale or inside market. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a convertible security.

1. The total cost of an option.

The single or regular periodic payment made to an insurance company in respect of an insurance policy.

The extra amount you pay for a security over and above its intrinsic value. For example: Warrants: the premium on a warrant is calculated as the price of the warrant minus the difference between the exercise price and the price of the underlying asset. So if a warrant costing 8p gives you the right to buy a share at 75p, and that share was currently trading at 70p, the premium would be 3p (8-5). Investment trusts: the premium is the amount by which the share price of the investment trust exceeds its net asset value per share. e.g. If the Net Asset Value is 3.00, and the share price of the trust is 3.30, the trust is trading at a 10% premium to its NAV. In the more common situation where the share price is below the net asset value, the trust is said to be trading at a discount.


Premium : the cost of an option contract.

(1) for a bond above the par value. (2) the price of an option contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. for convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. if a stock is trading at $45 and the bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). if the premium is high, the bond trades like any fixed income bond, if low, like a stock. see: gross parity, net parity. for futures, excess of fair value of future over the spot index, which in theory will equal the treasury bill yield for the period to expiration minus the expected dividend yield until the futures expiration. for options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). for straight equity, price higher than that of the last sale or inside market. related: inverted market premium payback period. also called break-even time, the time it takes to recover the premium per share of a convertible security.

1. the total cost of an option.

the single or regular periodic payment made to an insurance company in respect of an insurance policy.

the extra amount you pay for a security over and above its intrinsic value. for example: warrants: the premium on a warrant is calculated as the price of the warrant minus the difference between the exercise price and the price of the underlying asset. so if a warrant costing 8p gives you the right to buy a share at 75p, and that share was currently trading at 70p, the premium would be 3p (8-5). investment trusts: the premium is the amount by which the share price of the investment trust exceeds its net asset value per share. e.g. if the net asset value is 3.00, and the share price of the trust is 3.30, the trust is trading at a 10% premium to its nav. in the more common situation where the share price is below the net asset value, the trust is said to be trading at a discount.