Option pricing depends on several factors.

The first factor is time. The longer the time, the more expensive it is. An option with a one year expiration cost more than a one week option. Just as you lease a car for a year, the payments will be more than leasing it for a week.

The second thing to know about option trading is the strike price. The further away the strike price is from the stock price, the less expensive it is. You will pay more if you buy an option giving you the right to purchase 100 shares at $25 when the stock is at $25 than if you buy an option giving you the right to buy at $30 with the stock at the same $25 level. This is analogous to renting a house with a right to buy. If the house is worth $300,000 and your right to buy is at $300,000, then your option is a lot more expensive than if your option gave you the right to buy at $600,000. The reason is that at $300,000 the house could appreciate much quicker, (hence option price goes up), while to get to $600,000 could take a couple of years. And who knows, maybe the time will run out or expire if your option is only good for a year. And similarly, a put option with a lower strike than the market price will cost less than one that is closer to the market price. If someone guarantees to buy your car for $1000 while the car is worth $10,000, this option wouldn't be worth much. After all, we all know the car's value cannot drop that fast. But the option that will cost a lot more is one that allows you to sell your car at $10,000. It is only fair that the cost is higher as you have the flexibility to sell your car or keep it during this time frame.

And the third factor is the volatility, (beta), of the stock. The higher the volatility, the more expensive the option. Insuring waterfront property in a hurricane area will cost more than a ranch in Montana. The options on a utility company that hardly moves is much cheaper than a comparable option in both time and strike of a dotcom stock as movement with the latter could be a 10% move in one day while the utility stock could take one year for a similar move. So if money could be made faster, the option will cost more. These are the basis for option trading.

A strategy that is considered conservative in option trading is by selling put options or being "naked" puts. As you can remember, buying puts gives you the right to sell 100 shares of stock at a certain strike price within a certain time frame. The seller of these put options that you have bought are "obliged" to buy these shares whenever you decide to exercise this right. For this bullish obligation, (since they are ultimately buyers of stock), they receive a premium which they pocket. Let's say that INTC's price is 25.00 and has a 52-week range of 18.75 to 27.54. Suppose that we think that the stock is currently consolidating and prices might take several weeks to move higher. Then by selling puts, we can try to buy it at a discount to the prevailing market price. We can sell the Nov 25 puts uncovered or "naked" for $1.25. We are then obliged to buy the stock at 25 but minus the 1.25 premium that we just received which gives us a cost of 23.75 if we were exercised. If the stock is above 25 at expiration, then we have only made $1.25 because who would sell it at 25 when the market price is higher? But if the stock is below 25 and above 23.75, then we would be obliged to buy the stock and have a better cost price than 25.00. A close at expiration of 25 would yield our maximum profit potential. Obviously, if the stock descends past 23.75, we would be losers and that brings us back to getting the direction right in the first place. Naked puts would have given us a better cost than by buying at 25.00 a month before. In option trading, both covered call writing and selling puts are not considered risky strategies as you are sellers in both cases and only have the same downside risk as in owing the stock.

"Day Trader" and "Swing Trader" uses option trading during the earnings reporting period. If the earnings beats the analysts' estimates by wide margins and gets some before-the-opening upgrades, selling naked puts is a viable strategy along with being long the stock. If the stock continues higher, the put value depreciates. But if the stock goes down, the cost is buffered with the premium received on the sale.