Question

A put option with 12 months to expiry would be priced higher than an otherwise-identical put option with 8 months to expiry. This is because the former has more time for the share price to move down below the strike price allowing the put option to finish in the money.

However, one could also argue that there is also more time for share price to move upwards, meaning the put option may finish out of the money.

Explain why more time before expiry results in an increase in the value of a put?

Answer 1

This is due to the time value elements which is associated with the options contract and due to the time value in the options contract,the contract which has more time to expire will be relativity priced higher because that would be reflecting the higher possibility of options getting exercised due to higher time on hands.

The argument that more time is there for the share price to move upward will be valued in the call option and it is not about put Option.

When there would be higher possibility of achievement of the higher price than that would be reflected in the call options of the contract, because call option would be reflecting the the sentiments of all the buyers who are bullish on the share and it will also reflect how much they are going to pay time value premium to the call option if they want that option to achieve the strike price so, the possibility of upward momentum will be reflected in call option and the possibility of downside momentum would be reflected in put option.

more time will be increasing the value of both put option and call option because there would be a possibility of increase in up side or there would be a higher possibility of increase in the downside.

So the argument is not true because it would have been adequate in case of call option.