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What Is the Relationship between Probability and Time Value?

Higher probability of a favorable outcome leads to higher time value.
Greeks.Live22.11.25

What Is the Relationship between Probability and Time Value?

Time value is directly related to the probability of an option expiring In-The-Money (ITM). The higher the uncertainty or the greater the probability of a favorable outcome, the higher the time value.

ATM options have the highest time value due to the maximum uncertainty.

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