Chapter 03 · Section 3.1

Time value definition

Therefore: The closer an option is to expiration, the more quickly it loses time value. We previously defined time value in the following manner: Time value = option premium - intrinsic value

We know that time value decreases with time. But can time value sometimes increase?

• a) no
  No. The question is not only how much time is left to expiration of the option. Much depends on what is likely to happen during this time - in other words, how volatile the underlying asset is.
  b) yes

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