Chapter 03 · Section 3.1
Expiration time increase
The longer the time to expiration,
a) the higher the put premium;
b) the higher the call premium;
c) the lower the put premium;
d) the lower the call premium.
e) a and b
f) a and c
If you take the risk to write an option, would you ask for more if the option is going to last for a long time or if it is going to last for a short time?
In this exercise we look at an American option. The impact of time to expiration may be different in the case of European options.
The effect of time to expiration is the same for calls and puts.
The effect of time to expiration is the same for calls and puts.
(b) and (d) do not go together
Be it for a call or a put, it is better to have the right to choose for a long time. As for the writer of an option, the longer the time to
maturity the greater the risk, and thus the higher the premium.