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The value of the options is typically determined using Black-Scholes or similar valuation formulas, which take into account such factors as the number of years until the option expires, prevailing interest rates, the volatility of the stock price, and the stock's dividend rate.
Each contract represents 100 shares of the underlying stock. Investors don't have to own the underlying stock to buy or sell a call. If you think the market price of the underlying stock will rise, you can consider buying a call option compared to buying the stock outright.
Before options can be written, a stock must be properly registered, have a sufficient number of shares, be held by enough shareholders, have sufficient volume, and be priced high enough.
Depending upon the tax treatment of stock options, they can be classified into qualified and non-qualified stock options. Qualified stock options are also called Incentive Stock Options (ISO).
Employee stock options are offered by companies to their employees as equity compensation plans. These grants come in the form of regular call options and give an employee the right to buy the company's stock at a specified price for a finite period of time.
To trade options you must have a minimum of two years trading experience with that product. Your Net Worth cannot be less than your Liquid Net Worth. To qualify for a Portfolio Margin account, your Net worth and Liquid Net Worth must each be greater than 100,000 USD.
If you're interested in trading options, you must apply for special permission from your brokerage. They will then assign an options level that they feel is appropriate based on your account, education, history, and other factors.
The US federal tax laws do not generally address the level of approval required for equity awards, but the tax rules that govern the qualification of so-called incentive stock options require that the options be granted under a shareholder-approved plan.