What Is the Difference between an Option’s Intrinsic and Extrinsic Value?

Intrinsic value is the immediate profit realized if the option were exercised right now; it is the amount the option is in-the-money. Extrinsic value, also known as time value, is the portion of the option's premium exceeding its intrinsic value.

It represents the value derived from the possibility of the option moving further in-the-money before expiration. Theta only acts upon the extrinsic (time) value.