Define "Extrinsic Value" and How It Relates to Time Decay ⎊ Path

Define “Extrinsic Value” and How It Relates to Time Decay.

Extrinsic value, also known as time value, is the portion of an option's premium that exceeds its intrinsic value. It represents the market's expectation of the option's potential to become profitable before expiration.

Time decay (Theta) directly erodes this extrinsic value, reducing it to zero at expiration.

How Does an option’S’premium’ Relate to Its Intrinsic and Extrinsic Value?

Why Is a Deep ‘Out-of-the-Money’ Option’s Premium Composed Entirely of Extrinsic Value?

Why Is the Option Premium Always Greater than or Equal to Its Intrinsic Value?

Can an Option Have Extrinsic Value but Zero Intrinsic Value?

What Is the Difference between Intrinsic Value and Extrinsic (Time) Value of an Option?

What Is the Difference between ‘Intrinsic Value’ and ‘Extrinsic Value’ of an Option?

How Is the Intrinsic Value of an Option Calculated?

How Does an Option’s Moneyness Affect Its Premium?