Options are contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time period. When valuing an option, we use a formula called the Black-Scholes model, which takes into account factors such as the current price of the underlying asset, the strike price, time to expiration, and volatility. This model helps us determine the theoretical price of an option and allows us to make informed investment decisions. Remember, options are just one tool in the complex world of finance, but understanding their valuation is crucial for successful investing.
