Options Pricing: Distinguishing Between Option Premiums And Theoretical Value
It is important to differentiate between an option premium and its theoretical value. As discussed previously, the option premium is the price the option buyer pays to the seller in order to have the right granted by the option, and it is the money the seller receives in exchange for writing the option.
The theoretical value of an option, on the other hand, is the estimated value of an option – a price generated by means of a model. It is what an option should currently be worth using all the known inputs, such as the underlying price, strike and days until expiration. These factors often change during an option's lifetime, and some fluctuate in value on a continuing basis throughout any trading session.
A pricing model will create theoretical values, but they are just that – theoretical. Specific values for each factor can be used to predict an option contract's theoretical value at a given point in the future.
When options are first listed on a stock, for example, the market makers will not know what sort of implied volatility to use, so they must make educated guesses (theoretical values). The implied volatility will then change based upon the supply and demand for the options.

Strike Width
The difference between the strike price of an option and the ... 
Inverse Transaction
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Reference Equity
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Boundary Conditions
The maximum and minimum values used to indicate where the price ... 
BjerksundStensland Model
A closedform option pricing model used to calculate the price ... 
DeltaGamma Hedging
An options hedging strategy that combines a delta hedge and a ...

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