Premium Pricing
Categories: Company Management, Econ, Real Estate
This refers to the method used to figure out how much a stock option should cost.
The "premium" is what you pay to buy an option on a security, whether you own that security or not. (Look up short-selling and marvel at the all the fun ways you can get yourself in serious trouble.) The "option writer" figures out the price by looking at a whole slew of data to find the option's theoretical value, like the stock's underlying price, the length the buyer wants to hold the option, and the strike price (the point that the option will execute).
If the stock just bounces around never hits the option's strike price, the writer still keeps all that delicious premium.