Back To Answers
"Difference In Price Between Different Maturities?"

Question By Marco Presta

"Difference In Price Between Different Maturities?"

Why is there a gap in prices for the same option with different maturities (e.g. one expiring in august and one expiring in december)?

Asked on 3 July 2010

explosive option trading mentor Explosive Options Mentoring Course
Find Out How My Students Make Over 40% Profit Per Trade Consistently Through Options Trading In The US Market Even During An Economic Downturn!

Answered by Mr. OppiE

Hi Marco Presta,

Indeed, when you compare options of the same type, underlying and strike price but with different maturities, prices are different. Let's compare the price difference between July and September call options of QQQQ in the picture of QQQQ's options chain below:

comparing QQQQ July and September options
Comparing QQQQ's July and September Call Options

You would notice that September call options across ALL strike prices are more expensive than July call options of the same strike prices. In fact, the price difference is very significant with as high as 39 times difference in price on the far out of the money call options. Why is this so? What justifies such a huge difference in price?

Without going into too much technical details, the reason why options of the same type, underlying and strike price but with different maturities differ in price by so much is due to the concept of "Time Value". Even though the price of options is determined by more than one variable, the variable that made the difference you see in the picture above is what is known as "Time To Expiration". With more time to maturity, time value of an option increases due to the longer term of risk that the writer of the option have to undertake for selling you that option. Time value is the part of the price of the option that typically decreases for the same strike price as time to expiration decreases.

Indeed, time value decreases for options with lesser time to expiration and is also why options you buy become cheaper and cheaper as expiration draws nearer with the underlying stock remaining stagnant. This phenomena is known as "Time Decay".

It must be made clear here that there are other factors that can affect time value of options, which is more properly known as "extrinsic Value", such as implied volatility and forces of supply / demand. However, the factor that created the price difference between same options of same strike prices across different maturities is time value itself or time to expiration.

So, why would anyone choose to buy options with longer maturity that are more expensive when options with shorter maturities at the same strike price could cost so much lesser?

Well, there could be many reasons but the most obvious one is that you simply expect to hold on to your options position for a longer period of time. Perhaps you are trading a trend that could take months to work out which will make buying options of shorter maturity impractical. Moreover, if you keep buying near the money options of shorter maturity and then rolling them forward as each expire for such long trends, you would actually incur much more time value cost than if you had simply bought options with longer maturities.

In conclusion, price difference between options of the same strike price but with different maturities is due mainly to time value of options which increases with time to expiration.

High Yield Covered Calls High Yield Covered Calls $29.90 Only! High Yield Covered Call: Finding the Perfect Stocks For Covered Calls
Perfect for all Options Traders! Original eBook by, the number one online options trading encyclopedia!
This eBook Covers:
The Secret to looking for the PERFECT stock for Covered Calls
The number of ways to write Covered Calls
The two ways of measuring Covered Call returns
Most Importantly, how to automatically look for high yield Covered Call opportunities to make up to 25% a month!
This $29.90 eBook teaches you all these and more!

Average Reader Rating : 4.5 / 5 is a Masters 'O' Equity company and uses Masters 'O' Equity payment gateway

Response by Marco Presta...

Reply by Mr. OppiE...

Response by Others...

Add Your Response Here

Continue your journey of discovery...
Click Me For Content Index
Click Above For Content Index

Have a Suggestion?

Options Pricing
Extrinsic Value
Intrinsic Value
Call Options
Stock Options
Options Trading
Options Trading EBooks

Back To Answers Main | Go To Option Trader's HQ


Important Disclaimer: Options involve risk and are not suitable for all investors. Data and information is provided for informational purposes only, and is not intended for trading purposes. Neither, nor any of its data or content providers shall be liable for any errors, omissions, or delays in the content, or for any actions taken in reliance thereon. Data is deemed accurate but is not warranted or guaranteed. and are not a registered broker-dealer and does not endorse or recommend the services of any brokerage company. The brokerage company you select is solely responsible for its services to you. By accessing, viewing, or using this site in any way, you agree to be bound by the above conditions and disclaimers found on this site.

Copyright Warning: All contents and information presented here in are property of and are not to be copied, redistributed or downloaded in any ways unless in accordance with our quoting policy. We have a comprehensive system to detect plagiarism and will take legal action against any individuals, websites or companies involved. We Take Our Copyright VERY Seriously!

Site Authored by