As mentioned above, premium refers to the price you pay to buy an option. it also refers to the price you receive if and when you subsequently sell the option. Like prices on the trading floor of a stock exchange or futures exchange, option premiums are arrived at through open competition between brokers representing buyers and sellers. Option markets are thus quite efficient supply and demand marketplaces. Trading is subject to the rules of the exchange and is closely regulated by the Commodity Futures Trading Commission (CFTC), a federal agency. Firms that deal in options are subject to CFTC regulation and also to regulation by the National Futures Association (NFA), the industry's congressionally authorized self-regulatory organization.