What Constitutes the Extrinsic Value of an Option?
The extrinsic value, also known as time value or volatility value, is the portion of an option's premium that exceeds its intrinsic value. It is the value attributed to the probability that the option will move into the money before expiration.
Extrinsic value is determined by the option's time to expiration, the implied volatility of the underlying asset, and the risk-free rate.
