How Does a Shorter Time to Expiration Affect the Premium Difference between ITM and OTM Options? ⎊ Path

How Does a Shorter Time to Expiration Affect the Premium Difference between ITM and OTM Options?

As time to expiration shortens, the time value for both ITM and OTM options decreases (Theta decay). For OTM options, their premium shrinks entirely to zero.

For ITM options, their premium shrinks toward their intrinsic value. The absolute premium difference will narrow because the time value component, which is the variable part, is decaying for both.

Why Does an ITM Option Have a Higher Premium Compared to an OTM Option with the Same Expiration?

What Happens to the Premium of an OTM Option at Expiration?

How Does Time Value (Extrinsic Value) Relate to an Option’s Total Premium?

Define In-The-Money (ITM) for Both a Call and a Put Option

What Is the ‘Time Value’ Component of an Option?

How Does ‘Time Decay’ (Theta) Affect the Value of an ITM Option Compared to an OTM Option?

What Is the Difference between an Option’s Intrinsic and Extrinsic Value?

How Does the Probability of Assignment Change as the Option Approaches Expiration?