Option pricing theory is a financial concept that helps determine the value of options, which are contracts giving the holder the right to buy or sell an asset at a predetermined price. The most well-known model in this theory is the Black-Scholes model, which considers factors like the current price of the asset, the strike price, time until expiration, interest rates, and volatility to calculate an option's fair price. Understanding option pricing is crucial for investors and traders, as it aids in making informed decisions about buying or selling options. By analyzing these factors, market participants can assess the potential risks and rewards associated with options trading, ultimately enhancing their investment strategies.