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premium

In terms of purchasing derivatives, it is the cost to purchase the option, furutre/forward contracts. This premium is a one time front-load fee paid to the broker who sold you the derivative. To calculate profit/loss at the end of investment, subtract/add the premium.

As an option gets closer to the exercise date, premiums increase if the security is 'in the money' and smaller as they seem to be 'out of the money'.

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Call and Put option

Category: Education

Total terms: 10

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