Sometimes traders say, ‘I’m not trading that one, all the spreads had too much premium.’ What is premium and how do I use the scanner to avoid spreads with too much premium. I think it means that the bid-ask spread is too wide and so it would take too long to break even, but I’m not quite sure. Thanks.
What is 'Premium?"
s_mark220
#2
I’ll take a shot at this, but it may be subject to correction.
There are two types of premium, but in the context of your question I think the premium is the price difference between the spread and the underlying. If you use the scanner then I THINK the premium about which you ask is the break-even distance. The scanner can be used to find spreads with minimal “premium” by choosing those with the smallest break-even distance.