When Is the Time Value of an Option at Its Maximum?
The time value of an option is typically at its maximum when the option is At-The-Money (ATM) and has a long time remaining until expiration. ATM options have the highest uncertainty about their final value, and a longer duration allows more time for the underlying price to move favorably.
Glossar
Maximum Time Value
Extrinsic Peak ⎊ The Maximum Time Value of an option occurs when the contract is perfectly at the money and possesses the longest duration remaining until expiration, as this state maximizes the probability weighting across all potential future price paths.
Time Value
Component ⎊ Time value, also known as extrinsic value, is a component of an option's premium that reflects the probability of the underlying asset's price moving favorably before the option expires.