Options basics needs to be cleared

Question

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

Regarding question 3. American options CAN be exercised before expiry/maturity. It is a different question than "SHOULD" they wait until maturity. — AlRacoon, Commented Oct 16, 2019 at 22:06

Slade · Accepted Answer · 2019-10-16 22:45:36Z

6

Yes the option premium is $13. Premium just means how much you have to pay for the option
The premium is paid upfront, so whenever the buyer enters the contract/buys the option
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

answered Oct 16, 2019 at 21:27

Slade

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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
Commented Oct 16, 2019 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
Commented Oct 16, 2019 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
Commented Oct 17, 2019 at 20:57

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