I understand that expected price changes of underlying assets are usually priced into options, but I don't understand how.
For instance, before upcoming earning reports the option values are inflated to a point that represents any potential profit from an earnings price jump or decrease in the underlying stock.
I dont understand how people interpret the "street estimates" to price the options. I would appreciate any insight into this and I'm not just focusing on earnings reports
for instance, if I believed a stock was going to drop 10% and nobody else did, I would still be unable to convince a market maker to accept my order for options at double their value - yet. I would have to buy and buy and buy and buy until the options were inflated in value that much, and that only happens if large parties or everyone expects a move like that.
Options pricing isn't an exact science, but any insight or empirical analysis would be greatly appreciated
(I am 100% sure that this question doesn't belong on the basic personal finance site)