Is the premium of an option refundable?

• A. Sometimes
• B. No
• C. Yes
• D. Only if exercised

Answer: (B)

Premium is the price you pay to acquire the option, so it represents the buyer’s upfront cost for the rights the contract grants. That payment is not refunded by the option itself, regardless of the outcome. If the option expires worthless, you simply lose the premium; if you exercise, you still don’t get the premium back—the total cost includes the premium plus the strike price. If you exit by selling the option before expiry, you’ll receive the current market value for the option, which may be more or less than what you originally paid, but that is not a refund of the initial premium. Hence, the premium is not refundable.