How Is a Derivative’s Value Related to Its Underlying Asset?

A derivative's value is entirely "derived" from the value of an underlying asset, which can be a stock, index, commodity, or cryptocurrency. The relationship is direct but often non-linear, especially with options.

For example, as the underlying asset's price increases, a Call Option's value typically increases, and a Put Option's value typically decreases. The relationship is quantified by pricing models that incorporate factors like volatility and time to expiration.