Definition
Time value, also called extrinsic value, represents the additional amount investors pay for the possibility that an option could become more valuable before expiration. It depends on time remaining, implied volatility, and the distance from ATM. Time value decreases as expiration approaches (time decay).
Formula
Time Value = Option Premium - Intrinsic Value
Example
A call option with $2 intrinsic value trading at $3.50 has $1.50 of time value.
FAQ
What is Time Value (Options)?
The portion of an option premium above its intrinsic value.
How do you calculate Time Value (Options)?
A common formula for Time Value (Options) is: Time Value = Option Premium - Intrinsic Value
Why is Time Value (Options) important?
Time Value (Options) helps investors evaluate options and make more informed decisions.