Spot Premium

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Option

    A financial derivative that represents a contract sold by one ...
  2. Spot Trade

    The purchase or sale of a foreign currency or commodity for immediate ...
  3. Payout

    The expected financial return from an investment over a given ...
  4. Spot Market

    1. A commodities or securities market in which goods are sold ...
  5. Spot Price

    The current price at which a particular security can be bought ...
  6. Forex - FX

    The market in which currencies are traded. The forex market is ...
Related Articles
  1. Options & Futures

    Introduction to SPOT Options

    Single-payment options trading (SPOT) allows investors to have full control over their investments.
  2. Forex

    What is the difference between trading currency futures and spot FX?

    The forex market is a very large market with many different features, advantages and pitfalls. Forex investors may engage in currency futures as well as trade in the spot forex market. The difference ...
  3. Forex

    How is the forex spot rate calculated?

    The forex spot rate is determined by supply and demand. Banks all over the world are buying and selling different currencies to accommodate their customers' requirements for trade or to exchange ...
  4. Trading Strategies

    Why do futures' prices converge upon spot prices during the delivery month?

    It's a fairly safe bet that as the delivery month of a futures contract approaches, the future's price will generally inch toward or even come to equal the spot price as time progresses. This ...
  5. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  6. Options & Futures

    Trading Using Binary Options

    Discover the securities and underlying assets you can trade using binary options in the US.
  7. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  8. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  9. Options & Futures

    Apple As An Example Of How a Protective Collar Works

    We define a protective collar, using Apple (AAPL) as an example. A protective collar is a combination of a covered call plus long put position.
  10. Options & Futures

    Apple As An Example Of How to Use a Bull Call Spread to Trade

    Here's how you can use a bull call spread to trade stocks.

You May Also Like

Hot Definitions
  1. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  2. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  3. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  4. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  5. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
  6. Dividend Discount Model - DDM

    A procedure for valuing the price of a stock by using predicted dividends and discounting them back to present value. The ...
Trading Center