In options trading, which term refers to the rights purchased by an option buyer?

In options trading, the correct term that refers to the rights purchased by an option buyer is the premium. The premium is the price that the buyer pays to acquire the option. It grants the buyer the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an underlying asset at a predetermined price within a specified time frame.

The premium is essential because it represents the cost of entering into the options contract and compensates the seller (or writer) of the option for the risk they undertake by granting these rights. Understanding the concept of premium is crucial for option buyers as it impacts the profitability of their investments. If the market moves favorably, the buyer can potentially sell the option at a higher price than the premium paid, resulting in profit. Conversely, if the market moves against their position, the loss is limited to the premium paid.