Options basics needs to be cleared

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 Oct 16 '19 at 22:06

1 Answer

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 • “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. – Daneel Olivaw Oct 16 '19 at 22:00 • @DaneelOlivaw yeah that's definitely correct. I was trying to be ambiguous since it seemed like the OP didn't need extra details. Thanks! – Slade Oct 16 '19 at 22:02 • I think$13 is spot price of apple stock and premium would be something different. $13 premium when the strike is$15 looks suspicious. – Ussu Oct 17 '19 at 20:57