Spot Premium

DEFINITION of 'Spot Premium'

The money an investor pays to a broker in order to purchase a single payment options trading (SPOT) option. With a SPOT option (also called a binary option) the investor chooses the payout he wants and the market conditions he wants to occur in order to receive that payout. The broker then sets a premium for the option based on the probability of the investor's predictions occurring.

BREAKING DOWN 'Spot Premium'

The spot premium is usually a percentage of the payout. After the broker sets the premium, the investor can choose to go ahead and buy the option if she is satisfied with the price, or to decline if she thinks the price is too high. If the payout conditions do occur, the investor collects his payout. If they not occur, the investor will lose the spot premium. However, no matter what happens in the market, the most she can lose is the spot premium.