Why Does an Out-of-the-Money Option Only Consist of Time Value? ▴ Learn

Why Does an Out-of-the-Money Option Only Consist of Time Value?

An out-of-the-money (OTM) call option has a strike price higher than the current underlying asset price. Since the intrinsic value is calculated as Max(0, Underlying Price – Strike Price), the intrinsic value for an OTM option is zero.

Therefore, the entire premium paid for an OTM option is purely its time value, reflecting the possibility it might become profitable before expiration.

Does an Out-of-the-Money Option Have Intrinsic Value?

How Does an In-the-Money Covered Call Differ from an Out-of-the-Money Covered Call?

What Is the Intrinsic Value of an Out-of-the-Money Put Option?

Does a Margin Call Occur Only When the Option Is In-the-Money?