Definition of Time Value

Time value is the value of an option which exceeds its intrinsic value or its in the money amount.

Applying "Time Value" to Securities Exams:

An option’s premium is made up of intrinsic value and its time value. An option’s intrinsic value is the amount by which the option is in the money. The time value is the amount by which the option’s premium exceeds its intrinsic value and can by looked at as what an investor pays for the opportunity to potentially exercise the option in the future.

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