Options are financial derivatives of stocks, exchange traded funds (ETFs), financial indices, like the S&P 500 (symbol SPX), and futures. (Stocks and ETFs are referred to as equities).
Each option is a contract between buyers and sellers. Most option contracts represent 100 shares of stock. And every option has a specified contract expiration date. Instead of buying or selling a stock or an ETF, an option trader buys and sells option contracts by paying or receiving option premium, where premium is the current value of an option contract at a given option price.
The premium values are mathematically derived from the current market price of the underlying equity, current trading volume (or buying and selling volatility), and the amount of time remaining until the option contract expires.
The premium values are mathematically derived from the current market price of the underlying equity, current trading volume (or buying and selling volatility), and the amount of time remaining until the option contract expires.