If an Option Has $1 of Intrinsic Value and a $3 Premium, What Is the Time Value?
The option premium is the sum of intrinsic value and time value. Therefore, Time Value = Premium – Intrinsic Value.
In this case, Time Value = $3 – $1 = $2. The time value is the $2 portion of the premium that is due to the remaining time and implied volatility.
Glossar
Time Value of Zero
Derivation ⎊ The Time Value of Zero, within cryptocurrency derivatives and options trading, signifies a theoretical point where an option's premium is entirely composed of intrinsic value, devoid of any speculative time component.
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.
Time Value
Duration ⎊ The temporal dimension inherent in cryptocurrency derivatives, options trading, and financial instruments fundamentally defines time value.