Hall, Inc., enters into a call option contract with Bennett Investment Co. on January 2, 2011. This contract gives Hall the option to purchase 1,000 shares of WSM stock at $100 per share. The option expires on April 30, 2011. WSM shares are trading at $100 per share on January 2, 2011, at which time Hall pays $400 for the call option. The $400 paid by Hall, Inc., to Bennett Investment is referred to as the
A) option premium.
B) notional amount.
C) strike price.
D) intrinsic value.

Question

Quizplus · Accepted Answer

The $400 paid by Hall, Inc., to Bennett Investment is referred to as the option premium. Option premium is the price that the holder of the option pays to buy the option from the writer of the option.

Hall, Inc, Enters into a Call Option Contract with Bennett Investment