Options Basics
Time Value
The premium you pay for time and uncertainty — and the part that melts away as expiry approaches.
Definition
Time value (also called extrinsic value) is the part of an option's premium above its intrinsic value. It's what buyers pay for the possibility that the option moves further into the money before expiry.
Formula
Time value = option premium − intrinsic value.
What drives it
- Time to expiry — more time, more time value.
- Implied volatility — higher IV, more time value.
- Moneyness — greatest for at-the-money options.
Example
A 22,500 call trades at 150 with NIFTY at 22,600. Intrinsic = 100, so time value = 50. That 50 erodes daily via theta and hits zero at expiry — only intrinsic value remains.
Watch time decay happen
TradePulse's Greeks calculator shows how time value and theta erode as expiry nears.