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I'm not clear for the terminology of options and the mechanics of it. Any help is appreciated. For example the following statement:

European call option of Apple stock with maturity 1 year and strike price $15. The option is trading at 13 dollars.

  • Is it correct to say that the premium is $13 for this call option?
  • When is the premium paid, when the buyer buys the option or at maturity?
  • Can the holder of the option exercise it whenever he wants or should wait for the maturity?

Thanks in advance

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  • $\begingroup$ Regarding question 3. American options CAN be exercised before expiry/maturity. It is a different question than "SHOULD" they wait until maturity. $\endgroup$ – AlRacoon Oct 16 at 22:06
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  1. Yes the option premium is $13. Premium just means how much you have to pay for the option
  2. The premium is paid upfront, so whenever the buyer enters the contract/buys the option
  3. European options can only be exercised at maturity. An American option is the type of option that can be exercised before maturity at any time. A Bermudan option can be exercised at a discrete set of dates before maturity.

Last point is credit to @DaneelOlivaw

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  • $\begingroup$ “An American option is the type of option that can be exercised before maturity at any time”. A Bermudan option can be exercised at a discrete set of dates before maturity. $\endgroup$ – Daneel Olivaw Oct 16 at 22:00
  • $\begingroup$ @DaneelOlivaw yeah that's definitely correct. I was trying to be ambiguous since it seemed like the OP didn't need extra details. Thanks! $\endgroup$ – Slade Oct 16 at 22:02
  • $\begingroup$ I think $13 is spot price of apple stock and premium would be something different. $13 premium when the strike is $15 looks suspicious. $\endgroup$ – Ussu Oct 17 at 20:57

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