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How Does Volatility Affect an Option’s Time Value?

Higher expected volatility of the underlying asset, like a cryptocurrency, increases an option's time value. Volatility signifies a greater chance of large price movements, increasing the probability that an option will become significantly in-the-money before expiration.

This potential for higher future intrinsic value makes the option premium, and thus its time value, higher. Lower volatility decreases time value.

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