Option premium

Option premium — the cash an option buyer pays the seller today for the right the option grants. For a covered-call writer it’s the “yield”: real income in the same sense an insurer’s premiums are real income — payment for underwriting someone else’s outcome, and some years the claims exceed the premiums. The one genuinely compensated edge inside it is the volatility risk premium (options tend to be priced for more turbulence than materializes); retail yield products charge fees on that edge and market the rest as a dividend.

First used in: 2.4 · Yield is not free money