Extrinsic Value
The time-and-volatility part of an option premium that melts away by expiry.
Definition
Extrinsic value is the portion of an option's premium that exceeds its intrinsic value. Also called time value, it reflects the chance the option gains worth before expiry, and is driven mainly by time remaining and implied volatility.
Formula
Extrinsic value = Option premium − Intrinsic value
For an out-of-the-money option, intrinsic value is zero, so the entire premium is extrinsic value.
Why it matters
Extrinsic value is what option buyers pay for hope and what sellers collect as their edge. It decays toward zero as expiry approaches (the job of theta) and shrinks when volatility falls (driving IV crush). Understanding it explains why an option can lose money even when the underlying moves your way slowly.
Example
A stock trades at 1,020 and its 1,000-strike call costs 35. The intrinsic value is 20 (1,020 − 1,000), so the extrinsic value is 15. That 15 is pure time and volatility premium that will erode to nothing if the stock simply sits at 1,020 until expiry.
See it live
TradePulse's live option chain shows premiums and IV per strike, so you can split intrinsic from extrinsic at a glance.