Why Do OTM Options Benefit More from an Increase in IV than ATM Options?

OTM options benefit more from an increase in Implied Volatility (IV) because they are composed entirely of time value, which is directly linked to IV. A higher IV increases the perceived probability of the OTM option moving ITM before expiration.

While ATM options also benefit, their price is already relatively high, and the percentage increase in premium due to IV is often more pronounced for the cheaper OTM options.