Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

In the options market, a put premium refers to the price or cost that the buyer of a put option pays to the seller (or writer) of the put option contract.

A put option gives the holder the right, but not the obligation, to sell an underlying asset (such as a stock or other security) at a predetermined price (strike price) within a specific time period.

The put premium is the amount paid upfront by the option buyer to the option seller for this right. It represents the cost of acquiring the put option contract.

The put premium is composed of two components:

  1. Intrinsic Value: This is the amount by which the strike price exceeds the current market price of the underlying asset if the option is in-the-money.
  2. Time Value: This is the premium over the intrinsic value that accounts for the time remaining until expiration and the possibility that the option could become more valuable before it expires.

The put premium will be higher when the underlying asset is more volatile, there is more time until expiration, and the option is more in-the-money. Conversely, the premium will be lower with less volatility, less time until expiration, and if the option is out-of-the-money.

Learn more about the Market Situation Report written by Tier 1 Alpha.

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