The Bitcoin block chain (or Ethereum for that matter) knows nothing about options prices or rules. The oracle would programmed to provide a signature (or reveal an outcome-dependent hash preimage) at various points in the option's lifetime. This allows the winning party to claim the money in the contract.
The same concept can be used for prediction markets and gambling. The limitation in each case is that the oracle becomes a point of attack. The larger the value in the contract, the more incentive to attack.