Why put option loss it’s value when time to maturity increases and what happens when time to maturity decreases?
Are we talking about American puts or European?
I would think this would mostly apply to European puts as they can only be exercised on a certain date. Since the market in general is generally expected to have positive returns, the longer you have to wait to exercise a put could create a negative time value for the option.
But I don’t believe that you can use a blanket statement like “put options have lower values when the time to maturity increases,” it would depend on market expectations, and probably how far in or out of the money that option is.
In general, the time value of options is positive, and bigger the longer the time to maturity.
Therefore, in general, everything else being equal, the value of a put option will _ increase _ with a longer time to maturity and _ decrease _ with a shorter time to maturity.
However, for very deep-in-the-money put options, the time value can be negative. When that occurs, the value of the put option will _ decrease _ with a longer time to maturity and _ increase _ with a shorter time to maturity (everything else being equal).
It has nothing to do with the market’s expectation of returns being positive or negative.
S2K 100% correct once again. Put options differ from call options in that there is a technical limit on payout (i.e. imagine the stock drops to $0, the value of the put cannot increase past strike price - exercise price). Hypothetically, the value of a call option can be infinite as the stock price approached infinity.