What is premium?Premium

An exporter won't receive €1 million for 3 months. If the exchange rate falls, the profit vanishes. What are the trade-offs between a forward contract and an FX option?

Futures lock in both sides; options only block the bad side. See how much it costs to "insure" a stock, and how to save on the premium.

Buy one option and sell another of the same type at a further strike: it costs less, and both the gain and the loss are capped.

Buying a call: pay a premium to lock in the right to buy at the strike. Drag the price at expiration and watch the payoff curve "bend".

One call costs a fraction of the stock price yet shares in the gains on 100 shares. But if the stock doesn't rise enough, it goes to zero. Compare the returns of buying stock vs. buying a call.

Buying a put: the right to sell at the strike, like "insurance against a fall". The lower the stock goes, the more it's worth.

The seller of an option gets paid up front but takes on an obligation. Compare the risks of a short call and a short put.

Take apart an option contract and see what's written on it: underlying, type, strike price, expiration date, premium and multiplier.

Pay a small amount now for the right to buy (or sell) at an agreed price later. Think of it like a deposit on a house.

Set aside the cash to buy the stock, then sell a put and collect the premium up front. If the price doesn't drop, you keep the money; if it does, you buy a stock you wanted anyway at a cost of strike − premium.

You already hold 100 shares, so you sell 1 call to collect a premium. If the stock doesn't rise you earn extra income; if it soars, your shares get bought at the strike. You trade upside for cash.

Compare long call, short call, long put and short put side by side, and tweak the payoff curves in real time.

Time value is like a melting ice cube: it shrinks every day, and melts faster the closer expiration gets.