Why Is Time Value Often Referred to as “Extrinsic Value”?
Time value is referred to as "extrinsic value" because it represents the value derived from external factors, rather than the immediate profitability (intrinsic value). These external factors include the time remaining until expiration and the underlying asset's expected volatility.
It is the portion of the premium that the market is willing to pay for the possibility of the option to become ITM before it expires.
Glossar
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Extrinsic Value
Volatility ⎊ This component represents the portion of an option's premium driven by market uncertainty regarding the underlying crypto asset's future price movement.
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.