How Does Time Value Affect an Option’s Moneyness?
Time value does not directly affect an option's moneyness, as moneyness is determined solely by the intrinsic value. However, time value is a crucial component of an option's total premium, especially for OTM and ATM options which have zero intrinsic value.
An option with more time until expiration has a higher time value, reflecting the greater probability that it could become in-the-money. Time value decays as the option approaches its expiration date.
Glossar
Time Value
Component ⎊ Time value, also known as extrinsic value, is a component of an option's premium that reflects the probability of the underlying asset's price moving favorably before the option expires.
Moneyness
Concept ⎊ Moneyness describes the intrinsic value relationship between an option's strike price and the current market price of the underlying asset, categorizing options as in-the-money, at-the-money, or out-of-the-money.
Time until Expiration
TimeHorizon ⎊ Time until Expiration, or Time to Maturity, is the remaining duration until an options contract reaches its conclusion and its intrinsic value must be determined or the right forfeited.