Can an OTM Option Have Extrinsic Value? Explain ⎊ Path

Can an OTM Option Have Extrinsic Value? Explain.

Yes, an Out-of-the-Money (OTM) option's entire premium consists solely of extrinsic value (time value and implied volatility). Since the current market price is unfavorable to the strike price, the intrinsic value is zero.

The premium exists because there is still time remaining until expiration, and the underlying asset's price has the potential to move favorably, making the option profitable.

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Glossar

Extrinsic Value

Volatility ⎊ This component represents the portion of an option's premium driven by market uncertainty regarding the underlying crypto asset's future price movement.