A common way to incorporate discontinuities in asset returns is to add a Poisson process to a Brownian motion. The jump-diffusion process provides probability distributions that typically fit market data better than those of the simple diffusion process. To compare the performance of these models in option pricing, the total volatility of the jump-diffusion process must be used in the Black-Scholes formula. A number of authors, including Merton (1976a & b), Ball and Torous (1985}, Jorion (1988), and Amin (1993), miscalculate this volatility. We show that if an investor uses Merton's volatility rate in the Black and Scholes (1973) model, she will underprice (overprice) some options, relative to the jump-diffusion model of Merton (1976a). However, if she used the correct volatility, she would overprice (underprice) the same options. We also show that the price difference between these models can be larger for some options and smaller for others than what was previously reported.