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
• b) yes
  Yes. Time value has two major components: time and volatility of the underlying asset. An increase in volatility will increase the time value of an option. A decrease will lessen it. Continue

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