Option Time Value

Options
Updated Apr 2026 • Has calculator

The portion of an option's price beyond its intrinsic value, reflecting the remaining time to expiry.

What is Time Value?

Option time value (also called extrinsic value) is the difference between an option's market price and its intrinsic value. It reflects the probability that the option may move further in the money before expiration. Time value decays as expiry approaches (theta decay) and falls to zero at expiration. At-the-money options have the highest time value relative to their price. Time value also increases with higher implied volatility.

Formula

Time Value = Option Price − Intrinsic Value

Worked Example

Worked example — Apple Inc. (AAPL) — ITM call example

Representative Q1 2024 market conditions

Step 1  Stock price (S): $195.00, Strike (K): $185.00
Step 2  Option market price: $15.00
Step 3  Intrinsic value = max($195 − $185, 0) = $10.00
Step 4  Time value = $15.00 − $10.00 = $5.00
Step 5  → $10.00 of the call's price is from being in-the-money
Step 6  → $5.00 reflects probability of further gains before expiration

Source: Hull, J.C. — Options, Futures, and Other Derivatives, 11th ed., Ch. 10 (2024-01-15)

Calculate Time Value

Observed mid-price of the option in the market

Current market price of the underlying stock

Option strike price

Enter 'call' or 'put'

Time Value

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Not investment advice.

How to Interpret Time Value

< 0
Zero time value — at or near expiration
0 – 2
Low time value — short-dated or deep OTM/ITM option
2 – 10
Moderate time value — typical near-term ATM option
> 10
High time value — long-dated option or high IV

📚 Advanced Options — Complete the path

  1. Implied Vol (IV)
  2. Put-Call Parity
  3. Time Value
  4. Rho (Call)
  5. BS Put
Sources
  1. Hull, J.C. — Options, Futures, and Other Derivatives, 11th ed.
  2. Investopedia — Time Value