Verbull Word of the day
Finance glossary

Time Value

Options & Derivatives · intermediate
Definition

The portion of an option premium beyond its intrinsic value.

Time value reflects the chance an option will become more profitable before expiration. It is highest for at-the-money options and decays toward zero as expiration approaches, an effect measured by theta. Higher implied volatility and more time remaining both increase time value.

In a sentence

Most of the option's price was time value, which melted away as expiration approached.

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