Derivatives are instruments that derive their value from an underlying security like share,debt instrument or commodities.Futures and options are two types of derivatives.A futures contract is a contract between two parties where both parties agree to buy and sell a particular shares of specific quantity and at a specified price at a specified date in future.Option contract is a contract which gives the right but not the obligation to buy or sell the shares at a specified price and date.The strike price is fixed,price moves.Here only the short is at risk.Call option gives the holder the right to buy shares at an agreed price on or before the particular date.
Put option gives the holder the right to sell shares at an agreed price on or before the particular date.
Premium is decide by both the buyer and the seller.