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Explain How Implied Volatility Affects the Magnitude of the Premium Difference

High IV increases the time value of all options, increasing the premium difference magnitude.
Greeks.Live14.11.25

Explain How Implied Volatility Affects the Magnitude of the Premium Difference.

Implied volatility (IV) generally increases the time value component of all options. However, it disproportionately affects the options with the highest time value (ATM/NTM).

As IV rises, the premium of OTM options will increase more significantly in percentage terms than the premium of deep ITM options, which are dominated by intrinsic value. This increases the overall premium magnitude for all options.

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