It's important to differentiate between an option premium and its theoretical value. As discussed previously, the option premium is the price the option buyer pays in order to have the right granted by the option – and the money the seller receives in exchange for writing the option.
The theoretical value (or fair value) of an option, on the other hand, is the estimated value of an option derived from a mathematical model, such as the BlackScholes model. It's what an option should currently be worth using all the known inputs, such as the underlying price, strike price 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 creates theoretical values, but they're 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 don't know what sort of implied volatility to use, so they make educated guesses (theoretical values). The implied volatility then changes based upon the supply and demand for the options.
The next few chapters in this tutorial cover some of the different types of models that investors use for option pricing.
Options Pricing: Modeling

Trading
Options Pricing
Options are valued in a variety of different ways. Learn about how options are priced with this tutorial. 
Trading
The Basics Of Option Price
Learn how options are priced, what causes changes in the price, and pitfalls to avoid when trading options. 
Trading
Factors That Determine Option Pricing
Gain a thorough understanding of factors that affect price and how it is essential in options trading. 
Trading
What Is Option Moneyness?
In the money, at the money and out of the money define the current profitability of options positions. 
Investing
Why Options Trading Is Not for the Faint of Heart
Trading options is not easy and should only be done under the guidance of a professional. 
Trading
How to Make Money by Trading Index Options
Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction. 
Trading
Understanding The Options Premium
The price of an option, otherwise known as the premium, has two basic components: intrinsic value and time value.