Effect of time to expiration on put option (page 88)

CFA Level I Derivatives
#1

Would you please explain how time to expiration is inversely related to option value ? Please use numerical example.

Thanks in advance.

#2

Assume that S0 = $50, X = $40, T = 0.5 (6 months), and p0 = $1.00.

Six months later, S0 = $50, X = $40, T = 0.0, and p0 = $0.00.

The price declined by $1.00.

Time to expiration _ is not _ inversely related to option value; as time decreases, value decreases.

#3

But, what will be in case of put option. It is mentioned in curriculum.

#4

I described a put option.

Rarely the time value will be negative (for a deep in-the-money put); in that case the option value will increase as time to expiration decreases.