The up-front price a call option buyer (long) pays to a call option seller (short) against the right to exercise on some underlying asset such as a stock, bond, or commodity or some underlying variable such as interest rate, inflation rate, profit rate, etc. The call premium is a cost to the option buyer and a gain to the option seller, and it helps determine the final outcome of the transaction. In other words, if the market price of an underlying stock is larger than the sum of the strike price and the premium of a call option, then it would be favorable for the buyer to exercise. Otherwise, the option would expire worthless, with the buyer’s loss limited to the premium paid.

The call premium is the maximum loss a call buyer can incur, while it represents the maximum gain a call seller can receive. From the perspective of a call buyer, the premium is known as a long call premium, whereas it is referred to as a short call premium from a call seller’s.