Premium is the total price of an options contract — the amount the buyer pays to the seller. In the context of the wheel strategy, premium is your income. When you sell a put or a covered call, the premium is immediately deposited into your brokerage account.
Premium is made up of two parts: intrinsic value (how deep in-the-money the option is) and extrinsic value (time value + implied volatility value). When wheel traders sell out-of-the-money options, the entire premium is extrinsic value — which decays to zero via theta if the stock stays on the profitable side of the strike.
A contract represents 100 shares, so an option priced at $1.50 generates $150 in total premium. When targeting monthly income from the wheel strategy, many traders aim for 1-2% of secured capital per contract per month in premium.