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What Are the Two Main Components of an Option’s Premium?

Intrinsic Value (immediate profit) and Extrinsic Value (Time Value, based on time and volatility).
Greeks.Live02.11.25

What Are the Two Main Components of an Option’s Premium?

The two main components are Intrinsic Value and Extrinsic Value (also known as Time Value). Intrinsic value is the immediate profit if exercised.

Extrinsic value is the portion of the premium based on the time remaining until expiration and the underlying asset's volatility. Total Premium = Intrinsic Value + Extrinsic Value.

What Is the Difference between ‘Intrinsic Value’ and ‘Extrinsic Value’ of an Option?
Define “Extrinsic Value” and How It Relates to Time Decay
What Is the Difference between Intrinsic Value and Time Value of an Option?
What Are the Main Components of an Options Premium (Intrinsic and Extrinsic Value)?

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