Question

Who pays the option Premium?

• A. Put Seller
• B. Call Seller
• C. Writer of an Option
• D. Call Buyer

Hint:

Remember: Buyer of an option = Premium payer. Seller/Writer of an option = Premium receiver. This applies to both calls and puts.

Answer 1

The Correct Option is D

Step 1: Understand the basics of options trading.
An option is a financial derivative that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price on or before a specified date. 

Step 2: Understand what option premium is.
Option Premium: The price paid by the buyer to the seller (writer) for acquiring the option rights. It is the cost of purchasing the option contract. 
 

Step 3: Identify who pays and who receives the premium.
Payer of Premium: The option buyer (whether Call Buyer or put buyer) Receiver of Premium: The option seller/writer (whether Call Seller or Put Seller) 

Step 4: Analysis of each option.
(A) Put Seller: Incorrect. The put seller receives the premium, does not pay it. 
(B) Call Seller: Incorrect. The call seller also receives the premium. (C) Writer of an Option: Incorrect. The writer (seller) is the receiver of the premium. 
(D) Call Buyer: 
Correct. The call buyer pays the premium to the call seller for the right to buy the underlying asset. Step 5: Conclusion. 
In options trading, the buyer (whether of a call or put option) always pays the premium to the seller/writer. Therefore, the Call Buyer pays the option premium. 
 Final Answer: (D) Call Buyer