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Time value
A portion of the total value of an option at a given point in time, which corresponds to the difference between the market price of the option and its intrinsic value at that time, and that can essentially be attributed to the likelihood that the price of the underlying will move favourably during the remaining term of the option.
(1) In general, the time value of an option decreases over time since the likelihood that the price of the underlying will move favourably decreases as the expiration of the option draws near.
(2) The total value of the option is composed of its intrinsic value and its time value.
Translations
Synonyms and variations
- Extrinsic value
- Time premium