As a knowledgeable professor in finance, it is essential to understand the concept of option premium. Option premium refers to the money an option buyer is willing to pay in hopes of gaining a profit from a change in the underlying futures price. This premium comprises both time value and intrinsic value, with any excess amount being known as time value. It is also referred to as extrinsic value or volatility value. This understanding is crucial in making informed decisions in the world of finance.
