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What Are the Two Main Components That Make up an Option’s Premium?

Intrinsic Value (current profitability) and Extrinsic Value or Time Value (potential for future profitability).
Greeks.live04.12.25

What Are the Two Main Components That Make up an Option’s Premium?

An option's premium is composed of two main parts: Intrinsic Value and Extrinsic Value (also known as Time Value). Intrinsic value is the immediate profit if the option were exercised (only present if ITM).

Extrinsic value is the amount by which the premium exceeds the intrinsic value, reflecting the possibility of the option becoming more profitable before expiration.

What Is the Difference between ‘Intrinsic Value’ and ‘Extrinsic Value’ of an Option?
What Are the Two Main Components of an Option’s Premium?
How Does the Premium Relate to the Intrinsic and Extrinsic Value of an Option?
How Is the Concept of Intrinsic Value Used in the Put-Call Parity Theorem?
Why Is the Option Premium Always Greater than or Equal to Its Intrinsic Value?
How Does an option’S’premium’ Relate to Its Intrinsic and Extrinsic Value?
What Is the Relationship between an Option’s Premium and Its Extrinsic (Time) Value?
How Does an Option’s Moneyness Affect Its Premium?

Glossar

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.

Extrinsic Value

Volatility ⎊ This component represents the portion of an option's premium driven by market uncertainty regarding the underlying crypto asset's future price movement.

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