Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The portion of an option price above its intrinsic value. Premium for time remaining.
Why It Matters
Time value is what you pay for possibility. A $100 call worth $8 when the stock is at $105 has $5 intrinsic value and $3 time value. That $3 represents the chance the stock goes even higher before expiration. Time value melts away daily (theta decay) until only intrinsic value remains.
Key Points
- Time Value = Option Price - Intrinsic Value (also called extrinsic value)
- ATM options have the most time value; deep ITM/OTM have less
- Time value decays faster as expiration approaches - it's a depreciating asset
Learn More
How Options Are Priced
Get a complete explanation with examples, key takeaways, and a quiz to test your knowledge.
Related Terms
Common Questions
The portion of an option price above its intrinsic value. Premium for time remaining. Time value is what you pay for possibility. A $100 call worth $8 when the stock is at $105 has $5 intrinsic value and $3 time value.
Time value is what you pay for possibility. A $100 call worth $8 when the stock is at $105 has $5 intrinsic value and $3 time value. That $3 represents the chance the stock goes even higher before expiration. Time value melts away daily (theta decay) until only intrinsic value remains.
Time Value = Option Price - Intrinsic Value (also called extrinsic value)
ATM options have the most time value; deep ITM/OTM have less
Time value decays faster as expiration approaches - it's a depreciating asset