# Time value of an option

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## Time value of an option

The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and the idea that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value. Related: In the money.

## Time Value of an Option

The portion of the value of an option determined by the amount of time until it expires and the likelihood that it will be in the money at that time. The time value of an option is generally calculated as the difference between the premium and its intrinsic value. See also: Time value of money.
References in periodicals archive ?
The value of an option is composed of two parts: the intrinsic value of the option and the time value of the option, which is primarily related to the uncertainty of future price movements of the underlying asset.
Volatility: The greater the volatility of the stock, the greater the time value of the option, because the stock has more potential to shoot higher than the exercise price.
Time remaining: The further away the expiration date, the greater the time value of the option, because the stock price has more time to appreciate.
Moreover, Figure 2 shows the time value of the option to delay the investment in First, which we compute as the difference between the E-NPV of First and the net present value of a committed investment in First.
Figure 4 shows how the time value of the option to invest in First depends on [eta] and [gamma].
The size of the waiting region for First, and thus the time value of the option, is increased when the correlation is higher.
In Figure 6 we note that the time value of the option to invest is almost independent of the volatility of First.
The time value of the option reflects the fact that the underlying price of the security can change before the expiration of the contract.
APBO 25 provides that: The charge to a company's earnings for an option grant is the amount of its "intrinsic" value, not its "fair value"--in other words, the time value of the option is ignored.
Option theory suggests that early exercise of an option always costs the holder because they immediately lose the time value of the option.
At 2-01-X2, BC adjusts the receivable and option to their current values, adjusts accumulated other comprehensive income (AOCI) to reflect the decline in time value of the options, collects the receivable, and exercises the option.
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