The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “Why are options with different maturities priced differently?” The reason that options with different maturities are priced in really is simply because of time. All other things being equal, when you have more time until expiration, you generally get more value in option contracts and the reason is simply because there's more time for the position to move in a favorable direction or a direction that you want it to move. For that reason, there's an added time premium the further and further you go out in time. Now, this has a little bit of a diminishing effect when you go say two years out versus three years out. There’s not that much of a difference compared if you were say five weeks out versus two years out. As you get closer and closer to expiration, the time value of option contracts starts to diminish at a much more quick pace and so, that's reflected in the price of dif