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Published On: Mon, Feb 11th, 2013

Net Option Premium

A Net Option Premium is a term that is associated with the costs of constructing an option strategy known as a synthetic option.

In a synthetic option, a trader sells one option contract and simultaneously purchases another.  To calculate the Net Option Premium of a synthetic option the trader would add the income from writing the number of option contracts and subtract the cost of buying the corresponding number of options contacts.  For example, if it cost the options trader 2.50USD per contract to purchase a call option and he earns 1.25USD for each option contract he writes, the Net Option Premium is 2.50USD – 1.25USD = 1.25USD.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

 

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