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Explain the Concept of “Time Value” in Option Pricing.

Time Value (Extrinsic Value) is the portion of an option's premium that exceeds its intrinsic value. It reflects the possibility that the option will become more valuable (In-the-Money) before expiration.

Time Value is maximized when an option is At-the-Money and decreases as the option approaches expiration, a process measured by Theta.

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