Chapter 02 · Section 2.1

Option premiums - Q4

An option premium is paid:

a) when the option is exercised.
No. You are confusing an option contract with a forward contract. In a forward contract, the price is determined when the transaction takes place but the writer is not paid until the commodity is actually delivered.
b) when the option transaction takes place.
c) when the option transaction takes place and is refunded when the option is exercised.