Option premiums increase as the term to maturity increases.

Question

Quizplus · Accepted Answer

Option premiums, also known as option prices, tend to increase as the term to maturity increases. This is because the longer the time until expiration, the higher the chance that the underlying asset price could move in a favorable direction, increasing the likelihood that the option will be exercised and leading to a higher premium. Additionally, longer-term options provide a greater degree of flexibility and protection for the buyer, which can increase demand and drive up prices.

Option Premiums Increase as the Term to Maturity Increases