How Does the Implied Volatility Affect the Time Value of an ATM Option? ▴ Learn

How Does the Implied Volatility Affect the Time Value of an ATM Option?

Implied volatility (IV) has the largest impact on the time value of an at-the-money (ATM) option. Higher IV indicates a greater market expectation of future price swings, which increases the probability of the ATM option moving significantly in-the-money.

This increased potential for profit translates directly into a higher time value component of the option's premium.

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