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Premium
(1) A bond sold above its par value. (2) The price of an options_contract ; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity. (3) For convertible_bond, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. Suppose a stock is trading at $45, and the convertible_bond at a $50 stock price and the convertible bond trading at 105. A similar bond without the conversion feature trades at $90. In this case, the premium is $15, or 16.66%=(105-90)/90. If the premium is high, the bond trades like any fixed income bond; if low, like a stock. See: Gross parity, net parity. (4) For futures, excess of fair value of future over the spot_futures_parity_theorem, which in theory will equal the treasury_bills yield for the period to expiration minus the expected dividend yield until the future's expiration. (5) For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). (6) For straight equity, price higher than that of the last sale or inside market. Related: Inverted market premium payback period. Also called break-even time ; the time it takes to recover the premium per share of a convertible security.
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