How Does the Time Horizon Affect the Premium Difference between OTM and ITM Options?
A longer time horizon increases the extrinsic value for both OTM and ITM options because there is more time for the underlying crypto price to move favorably. This typically widens the premium difference between OTM and ITM options, as the OTM option gains more time value relative to its low intrinsic value.
The greater the time, the greater the chance for a significant price swing to make the OTM option profitable.
Glossar
Extrinsic Value
Volatility ⎊ This component represents the portion of an option's premium driven by market uncertainty regarding the underlying crypto asset's future price movement.
Long Time Horizon
Patience ⎊ Adopting a long time horizon in crypto derivatives and DeFi investing is a strategic imperative that filters out noise from short-term market fluctuations.
Longer Time Horizon
Horizon ⎊ A longer time horizon in cryptocurrency, options, and derivatives contexts signifies a strategic positioning anticipating price movements and value accrual over extended periods, typically exceeding several months or years.
Time to Expiration
Decay ⎊ Time to Expiration, within cryptocurrency options and financial derivatives, represents the remaining lifespan of a contract before its termination and potential exercise or assignment.
Time Horizon
Duration ⎊ The time horizon in options trading defines the planned or actual length of time an investor intends to hold a specific derivative position or portfolio of contracts.