How Does the Time Value of a Deep In-the-Money Option Compare to an At-the-Money Option? ▴ Learn

How Does the Time Value of a Deep In-the-Money Option Compare to an At-the-Money Option?

The time value of a deep in-the-money (ITM) option is significantly lower than that of an at-the-money (ATM) option, assuming the same time to expiration. A deep ITM option's price is mostly composed of intrinsic value, as the probability of it becoming less profitable is low.

The ATM option has the highest time value because it has the greatest uncertainty regarding its final intrinsic value.

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