What is time value of an Option?

asked Tuesday, April 10, 2018

The time value of an option is the difference between its premium and its intrinsic value. All Options at Out of The Money (OTM) and At The Money (ATM) have time value.

Time Value = Premium - Intrinsic Value

For Call option

Intrinsic value = Current price of underlying - Strike Price

For Put Option

Intrinsic value = Strike Price - Current price of underlying

The longer the time to expiration, the higher will be an Option's time value. The time value at expiration is zero.

answered Tuesday, April 10, 2018

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