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Basics
What Is an Option Premium? What You Actually Pay
When you buy an option, the premium is what leaves your account — and it's also the most you can lose. Understanding what you're paying for is essential before you click Buy.
NoVo Options Trading · 2026
The premium is the price you pay to buy an option. It's quoted per share, so because one option controls 100 shares, you multiply by 100 for the real cost: a premium of $1.30 means you pay $130 for one contract.
What the premium is made of
An option's premium has two parts: intrinsic value (how far in-the-money it is, relative to the strike) and extrinsic value (time value and volatility premium — what you pay for the possibility of profit before expiration). An out-of-the-money option is all extrinsic value, which is why it can decay to zero as time runs out (theta decay).
Why it's your maximum loss
When you buy an option, the premium is the most you can lose — you can't lose more than you put in. If the trade goes against you, worst case the option expires worthless and you're out the premium, nothing more. That defined risk is a key feature of buying options (versus selling them).
The premium is both your ticket price and your maximum loss. Pay $130 for a contract, and $130 is the most that trade can cost you.
The quick takeaway
Premium = the price of the option × 100 = what you actually pay and the most you can lose (buying). On a leveraged 0DTE option, that premium can swing fast, so understanding it is the first step to knowing what a trade costs and sizing it sensibly.
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.