(1) for a
bond above the
par value. (2) The price of an
option contract; also, in
futures trading, the amount the
futures price exceeds the price of the spot
commodity. For
convertibles, amount by which the price of a convertible exceeds
parity, and is usually expressed as a percentage. If a
stock is trading at $45 and the
bond convertible at $50 is trading at 105, the premium is $15, or 16.66% (15/90). If the
premium is high, the bond trades like any fixed income bond, if low, like a stock. See:
gross parity,
net parity. For futures, excess of fair value of future over the
spot index , which in theory will equal the
Treasury bill yield for the period to
expiration minus the expected
dividend yield until the future's expiration. For options, price of an option in the
open market (sometimes refers to the portion of the price that exceeds parity). For
straight equity, price higher than that of the last sale or
inside market. Related:
inverted market premium
payback period . Also called
break-even time, the time it takes to recover the premium per
share of a
convertible security.