Time Value

Time value is the portion of an option's premium that isn't accounted for by intrinsic value — it reflects the market's uncertainty about whether the stock still has room to move enough to affect the option's payoff before expiration. An option that's out-of-the-money has no intrinsic value at all, so its entire premium is time value: a bet on the stock moving enough to change that before expiration. Time value doesn't erode at a steady pace — it decays slowly at first and accelerates sharply in the final weeks and days before expiration, especially for at-the-money options, a pattern measured by the Greek called theta. Time value is highest for at-the-money options, where the outcome is least certain, and shrinks as an option moves deep in- or out-of-the-money. That makes it different from intrinsic value, which depends only on where the stock is trading right now relative to the strike price — time value is the piece of the premium tied to how much time is left, and how much uncertainty that time still holds.