we define the "premium" on an option to be the difference between the price at which an option sells and the exercise value (or the difference between the stock's current market price and the strike price), then we would expect the premium to increase as the stock price increases, other things held constant.

Question

Quizplus · Accepted Answer

The premium on an option is the price paid for the option itself, which includes intrinsic value and time value. As the stock price increases, the intrinsic value of a call option increases, but the premium may not necessarily increase because it also depends on other factors like volatility and time to expiration.

We Define the "Premium" on an Option to Be the Difference