Why Do ATM Options Generally Have the Highest Time Value?

ATM options have the highest time value because they are at the inflection point where the probability of the option expiring ITM or OTM is roughly 50/50. This uncertainty creates the highest potential for future intrinsic value gain.

The market is willing to pay the most for this 'sweet spot' of uncertainty, as a small price move in either direction can quickly create intrinsic value.