Definition: A stock option is a contract between two parties in which the stock option buyer (holder) purchases the right (but not the obligation) to buy/sell 100 shares of an underlying stock at a predetermined price from/to the option seller (writer) within a fixed period of time.
Also, how much does it cost to buy a put?
The put with the $30 strike price is quoted at $2.50. A put with a $25 strike price is priced at $0.50 for a cost of $50. The value of a put option increases by $1.00 -- $100 per contract -- for each dollar the stock price drops below a put option strike price.
How is the price of an option determined?
The amount of the premium is determined by several factors - the underlying stock price in relation to the strike price (intrinsic value), the length of time until the option expires (time value) and how much the price fluctuates (volatility value).
What is the price of a call option?
Call options give the holder the right to buy 100 shares of an underlying stock at a specific price, known as the strike price, up until a specified date, known as the expiration date. The market price of the call option is called the premium. It is the price paid for the rights that the call option provides.