Options pricing

Time Value

The portion of option premium above intrinsic value.

01 / Definition

What Time Value Means

Time value, or extrinsic value, is premium remaining after intrinsic value. It reflects time, implied volatility, rates, dividends, and market supply and demand.

02 / Calculation

Time Value Formula

Time value = option premium − intrinsic value

03 / Worked Example

How to Read the Result

A $6.40 call with $4.00 intrinsic value has $2.40 of time value.

04 / Boundaries

Limitations

Wide spreads can distort the quoted residual.
It is not independently quoted.
Early exercise and dividends complicate comparisons.

05 / Questions

Common Questions

Do OTM options have time value?

Their entire positive premium is time value because intrinsic value is zero.