So, is the way this works that... on Dec. 11, 2014... he has to pay you the difference between the current BTC price and $1000?
So, if BTC was at $5000, he would owe you $4000, but if BTC was at $100, then you would owe him $900... is that right? What is the volume part all about?
I buy the right (but not obligation) to buy bitcoins from him at $1000 on 11th Dec 2014. I would pay him a premium when we agree the trade. If bitcoins are below $1000 on expiry then I don't buy from him (exercise) and he earns the premium. If bitcoin is above $1000 I would buy from him and my profit = Current BTC price - $1000 strike - premium.
The value of such a contract (and hence the premium I'm happy to pay) depends on how volatile the bitcoin market is before expiry... that's what is meant by "vol"... volatility. There's a lot of info on option on Wikipedia/Investopedia if you're interested.
Hah, I know it was a really newbie question and there is a lot of information out there, so I really appreciate your patience. I think I get it!
Can you exercise the trade anytime before Dec. 11, 2014?