The principle considerations in option pricing are the value of the underlying asset, the options expiry date, expectations for volatility, and, in the case of a stock option, for example, expectations for interest rates and dividends.
Time has a value. Longer options expiry dates attract higher prices because they allow more time for the strike price to be reached.
Higher price volatility in the underlying asset also increases the price of an option. Many options writers use mathematical models to price options, the most popular of which is the Black-Scholes model.
Option pricing models such as Black-Scholes… should be used with caution by investors.
Professional traders price options as follows. Each day they observe the prices of a number of actively traded options in the market. They use Black-Scholes to calculate implied volatilities for these options. They then interpolate between the implied volatilities to get a table showing the implied volatility as a function of strike price and time to maturity. This table is used to price other options during the day.
John C. Hull in The Harriman Book of Investing Rules, edited by Philip Jenks and Stephen Eckett.