Why do longer durations for options typically lead to higher premiums?

Longer durations for options typically lead to higher premiums because they allow more time for price movement. This is a fundamental concept in options trading: the longer the time until expiration, the greater the opportunity for the underlying asset to move in a favorable direction.

This added time increases the likelihood of the option finishing in-the-money, leading to higher potential returns for the buyer. As a result, the intrinsic and extrinsic value of the option increases, contributing to the overall premium that a buyer has to pay. Traders are willing to pay more for options with longer expiration periods due to the increased flexibility and potential for profit, which is not as prevalent in shorter-duration options where time is more limited.

In summary, the extended timeframe associated with longer-dated options inherently increases the probability of price fluctuations, thereby justifying the higher premium attached to them.