What Is the ‘Time Value’ (Extrinsic Value) of an Option?
Time value is the portion of an option's premium that exceeds its intrinsic value. It reflects the probability that the option will become profitable (In-the-Money) before it expires.
Time value is influenced by factors like time to expiration, volatility, and interest rates. It is maximum when the option is At-the-Money and decays to zero at expiration.
