What Is the Distinction between Intrinsic Value and Time Value in an Option Price?

Intrinsic value is the immediate profit an option holder would realize if they exercised the option right now. It is the difference between the strike price and the current market price, but only if the option is 'in-the-money.' Time value (or extrinsic value) is the portion of the option's price that is based on the probability of the option moving further in-the-money before expiration.

All options have time value, which decays to zero at expiration.